US stocks plummeted from record highs and now S&P futures are trading at 4.365. At the same time, risky assets are under pressure because dollar demand continues to grow quite rapidly.
The main reason is the uncertainty over when the Federal Reserve will taper bond purchases, which many are waiting for because government debt is widening more and more. That is a huge problem because soon the US Treasury may run out of money and fail to sustain economic growth.
So, over the weekend, the US Congress will ask the Department of Treasury to resolve the issue with the national debt limit and to name the exact date when funding may end. Representatives will vote whether or not to increase the debt ceiling without having to pass the bill through the Senate. But given the massive economic and financial turmoil that could lead to a default on payments, it is difficult to determine the exact date when the Treasury will run out of money. This is what the Congress is now seeking from Janet Yellen in order to clearly understand how much time remains.
As noted above, there will be a voting this week on the US debt ceiling. If authorities decide to increase it, the stock markets will be shaken, while dollar will rise sharply.
Actually, Democrats could already raise the debt ceiling using a method that requires a simple majority in both chambers. But House Speaker Nancy Pelosi said that since 2011, every time the debt limit needed to be raised, the Congress dealt with it on a bipartisan basis. However, 46 Republican senators have pledged earlier that they will not vote to raise the limit as they oppose the $ 3.5 trillion tax and social spending package that Democrats are trying to push.
In Europe, Germany reported that producer prices grew at a very fast pace in August, providing temporary support to euro. Destatis said PPI rose to from 10.4% to 12%, which is the largest increase since December 1974. On a monthly basis, producer prices rose at a slightly lower pace - 1.5%.
Core PPI, which excludes energy prices, rose 8.3%, while prices for intermediate goods rose 17.1%.
Considering all this, EUR/USD now depends on how long bullish traders can defend the 17th figure. If the price breaks out of this range, there will be a strong sell-off in the market, which in turn, will push the pair to 1.1670 and 1.1650. There is a huge chance that this scenario will happen because current political problems are forcing traders not to buy risky assets. Most likely, demand will recover only when the pair consolidates above 1.1730. Such will provoke an upward correction to 1.1760 and 1.1790.
GBP/USD
Pound greatly suffered after another political turmoil in the United States. Accordingly, the failure of bulls to push the price above the 39th figure led to a bleak outlook for GBP/USD.
On the bright side, the latest data on UK property prices amazed investors with its numbers. Rightmove said it hit a new all-time high in September, pushing the average apartment price to £ 338,462. This is £ 15 higher than the previous figure, which indicates that prices have stabilized. There are also signs that more properties are entering the market, which could help gradually align supply and demand. Recent reports also say housing prices rose 5.8% y/y and by 0.3% m/m.
Going back to GBP/USD, a lot now depends on August 20 lows because a break through it could provoke an upward correction to 1.3750 and 1.3805. Then, sellers will try to return to the market from these levels.
