The world watched with bated breath as the US political crisis surrounding its debt came close to the October 17 (Thursday) deadline. After the debt deal passed the US Senate on Wednesday, the US House of Representatives voted 285-144 in favor of the debt deal, which included issues about the budget, debt ceiling, and government shutdown, as well as sequestration and Obama’s health care plan. The deal reopened the US federal government from its partial shutdown and narrowly averted a debt default which could have unprecedented global economic repercussions.
The government shutdown affected an estimated 900,000 federal workers, and is expected to hike the unemployment rate by a few percentage points. US lawmakers will get back to the negotiating table as the recent debt deal only funds the government until January 15, with the US Treasury allowed to borrow until February 7.
In other news, US Empire State Manufacturing Index declined to 1.5 in October, following four months of index readings above the 5 level. On the other hand, Philly Fed Manufacturing Index surprised with a reading of 19.8 in October, a good follow-up to September’s 22.3 figure.
In the United Kingdom, Consumer Price Index remained at 2.7 percent in September, but Producer Price Index Input declined for the second straight month (-1.2 percent). Meanwhile, the Office for National Statistics said Claimant Count Change registered a decline of 41,700, the greatest decline in over 16 years. The Unemployment Rate remained at 7.7 percent for the second month.
A decisive $50 upmove in Gold on Thursday salvaged the bulls from seeing the $1,200 level and the three-year low set this June at $1,180. After the strong weekly close above $1,300, the next step for buyers is to bring price back towards $1,400.
Oil has now declined in five out of the last six weeks but the $100 level has not cracked on its first test. Topside resistance has been increasing and this will prove problematic for bulls in the coming week. A strong break of $104 is necessary to annihilate the very bearish mood that is developing.
EURUSD created the highest weekly close in nearly two years this week, climbing 230 pips to a 1.3703 high. It is important for buyers to keep the price afloat next week, avoiding takedowns through 1.3600-50 as much as possible. Next upside target is 1.4000-1.4250.
GBPUSD started the week very quiet but this changed towards the end of the week with a spike in volatility, resulting in a trading range of 330 pips. The pair exploded to the upside but was unable to take out the 1.6259 September high. Unlike EURUSD, GBPUSD will have to contend with multi-month resistance to as high as 1.6338 before it can trade in fresh territory.
USDJPY bulls continued to face headwinds as price gently moved up. They confronted mainstay sellers around 99.00 and bulls balked again, sending the pair lower to close the week at 97.74. Because of this, the 96.56 low set this October is back at risk.
The Week Ahead
This Monday, Asia will be pretty much quiet except for the release of Japan’s Trade Balance data. This will be followed by Germany’s PPI; Bundesbank Monthly Report; Canada’s Wholesale Sales; and US Existing Home Sales.
Tuesday will start quite late. There will be UK Public Sector Net Borrowing; Canada’s Retail Sales; and the delayed US jobs data (due to the recent US government shutdown), specifically Non-Farm Employment Change, Unemployment Rate, and Average Hourly Earnings.
Australia will kick off Wednesday with the announcement of CB Leading Index, Trimmed Mean CPI, and CPI. These will be succeeded by UK BBA Mortgage Approvals, MPC Asset Purchase Facility Votes and MPC Official Bank Rate Votes; US Import Prices; Belgian NBB Business Climate; Bank of Canada’s Rate Announcement and Statement, Monetary Policy Report, and press conference.
Economic data release on Thursday will start very early with New Zealand’s Trade Balance, followed by China’s HSBC Flash Manufacturing PMI; Germany, France, and Eurozone Flash Manufacturing PMI and Flash Services PMI; UK CBI Industrial Order Expectations; US Jobless Claims, New Home Sales, and Flash Manufacturing PMI.
Finally, Friday will have Japan’s Tokyo Core CPI; Germany’s Ifo Business Climate; Eurozone M3 Money Supply; UK Preliminary GDP; US Durable Goods Orders and revised UoM Consumer Sentiment.