EUR/USD Trades Sideways; U.S. Government Shutdown Looms

US Government threatened with possible shutdown again

  • The deadline for the US Congress to pass a bridging bill to fund the government until the 16th of February ends tonight. In the House of Representatives, in a display of strength, the Republicans past the bill with their own votes yesterday, however the Senate may be a different story altogether. There is a mixture of Democrats and Republicans that oppose the bill for different reasons. Democrats have been demanding protection from deportation for young immigrants known in the US as “Dreamers”. Republicans in response, inserted a long term provision for the Children’s Health Insurance Program, in the hope to lure Democrats to switch sides. However the voting of the bill hangs in the balance and should it not pass, partial government paralysis is imminent. U.S. Government Agencies have already started warning employees for a government shutdown, magnifying the effect. We consider that should the bill not pass, the US Dollar could be weakened and may open with a negative gap on Monday. Also, it should be noted that passing of consecutive monthly bridging funding bills instead of a yearly budget, could be increasing instability and hence weakening the US Dollar in the long run.
  • The EUR/USD traded in a rather sidewise manner yesterday, breaking the 1.2230(S1) resistance level (now turned to support) and hovering slightly above it. We expect the pair to continue to trade in a sideways manner for the short term and it could be influenced by the fundamental news regarding the possible US government shutdown, as well as any further developments on the German government coalition, especially on the SPD side. Please be advised, that there is a possibility that the pair could open with a negative gap on Monday, should the SPD congress decide not to back, the deal struck by SPD leadership with CDU and CSU. Currently should the pair come under buying interest, we could see it breaking the 1.2385 (R1) resistance level and continue to hover above it, as recent dynamics lack for it to reach the 1.2495 (R2) resistance hurdle. On the other hand should the pair come under selling interest We see the case for it to break the 1.2230 (S1) support level and aim for the 1.2100(S2) support barrier.

Soft Brexit optimism for the GBP

  • Media reports suggested the French Prime minister stated that should the UK want to have a single market in finance, it will have to pay for it and accept EU court’s jurisdiction. The offer is considered as beyond Theresa May’s red lines. Media reports also suggested that France may be showing it’s hardest bargaining line, in fear of future Brexit followers. On the other hand, there seems to be increased optimism as analysts point out that the Brexit Bill of 40 billion GBP could be covered by a number of advantages, even at a future “Canada style” relationship between the EU and UK which is considered as the weakest soft Brexit deal. We see the case, for the worries stemming from Macron’s statements to be subdued and that the Soft Brexit optimism will continue to support GBP at least in the short term.
  • GBP/USD prices rallied yesterday, reflecting the increased hopes for a soft Brexit, breaking the 1.3875 (S1) resistance level (now turned to support). We see the case for cable to continue to be in a slightly bullish mood for the short term, given the upward trend in the past 8 days. Having said that, we would also like to point out that the long positions seem to be overcrowded as the Relative Strength Index has surpassed 70, and a possible closing of such positions may be imminent. The pair could be influenced by any further fundamental news regarding Brexit or the possible US government shutdown, but also by the release of UK’s retail sales later on today. Should the pair, continue to be under bullish control, we could see it trying to reach, maybe even breaking the 1.4040 (R1) resistance line and hovering slightly above it, without reaching out for the 1.4175 (R2) resistance hurdle. On the other hand should the bears take the driver’s seat, we could see them drive the pair south, breaking the 1.3875 (S1) support level and aiming for the 1.3785 (S2) support zone.

As for today’s other highlights:

  • We get the German PPI figures for December, the Swiss PPI figures for December and UK’s retail sales data. As for speakers, Boston Fed President Raphael Bostic and San Francisco Fed President John Williams will speak.

EUR/USD

EUR/USD – 19 JAN 2018

Support: 1.2230(S1), 1.2100(S2), 1.2000(S3)Resistance: 1.2355(R1), 1.2495(R2), 1.2600(R3)

GBP/USD

GBP/USD – 19 JAN 2018

Support: 1.3875(S1), 1.3785(S2), 1.3684(S3)Resistance: 1.4040(R1), 1.4175(R2), 1.4325(R3)

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