Temporary lights out for US government
- The US senate was unable to reach a bridging funding bill on Friday and a government shutdown was imposed. The shutdown was followed by the usual blame game where Republicans and the White House blame the Democrats and vice versa. Currently, the shutdown remains as Republicans and Democrats don’t seem to be in a range for a possible agreement regarding the “Dreamers” issue. Analysts predict that the shutdown could prove to be short-lived, as the previous one lasted 16 days. Markets ignored the issue as mainly political for the time being, however, should it last for a longer period it could adversely affect the US dollar.
- The USD/JPY opened with no negative gap today and remained between the 110.45 (S1) support line and the 110.90 (R1) resistance level. We see the case for the pair to continue to trade in a sideways manner in the shortterm, however we also see the risks tilted to the upside as the current US government shutdown continues. We expect the pair to be sensitive to any further news regarding the US government shutdown as well as, any news headline predicting tomorrow’s BoJ interest rate decision and its accompanying statement. Should the bulls take the reins we could see the pair breaking the 110.90 (R1) resistance line and testing, maybe even breaking the 111.35 (R2) resistance level. On the other hand should the bears take the driver’s seat, we could see the pair breaking the 110.45 (S1) support level and hovering slightly below it.
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Germany: A decision with little applause.
- German SPD party’s conference decided yesterday to back the preliminary deal struck between the leaderships of the SPD, CDU and CSU. Currently the path clears for the three parties to refine the preliminary deal and formulate a political platform to govern Germany. Negotiations are to start immediately, last until the 12th of February, final approval vote should be given by the 440K SPD party member’s mid-March and Merkel should be sworn in as chancellor by end of March, should everything go as planned. German media suggested however that the SPD conference delegates in the conference were not totally convinced, they just gave Schultz a chance to finalize the deal and present it. It is expected of him to bring better results for the SPD during the negotiation process and should that not be the case we could see another political thriller by mid-March as the SPD members will vote for the deal.
- The EUR/USD broke the 1.2230 (R1) support level (now turned to resistance) during today’s Asian morning and continued to hover slightly below it. We see the case for the pair to continue to trade in a sideways manner, however we also see the risks tilted to the upside as the European market reactions could kicking in on the news. The pair could prove sensitive to any further news regarding the US government shutdown, as well as any headlines regarding ECB meeting coming Thursday. Should the pair come under buying interest it could break the 1.2230 (R1) and aim for the 1.2355 (R2) resistance level. Should it come under selling interest, it could break the 1.2100 (S1) support level. If the 1.2100 (S1) support level is breached we see the case for the pair to continue to hover slightly below it.
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No other major economic data are expected to be released today, however we would like to give you a small heads up for tomorrows BoJ interest rate decision.
EUR/USD
Support: 1.2100(S1), 1.2000(S2), 1.1890(S3)
Resistance: 1.2230(R1), 1.2355(R2), 1.2495(R3)
USD/JPY
Support: 110.45(S1), 109.90(S2), 109.30(S3)
Resistance: 110.90(R1), 111.35(R2), 112.00(R3)
