Monday, July 25, 2011

Absence of a U.S. Debt Ceiling Deal curdles Risk Appetite

Previous session overview
In reversing an image of political dysfunction in the euro zone and erasing some of the uncertainty surrounding the region's debt crisis, this week's Greek bailout deal gave the euro a sizable boost. 

But there's not much conviction that the European currency's rally can extend much further until the region deals more fully with its sweeping fiscal and political problems. 

Meanwhile, the U.S. debt talks to avoid a default on Treasury payments before an Administration-imposed deadline of Aug. 2 will add another wild card to currency markets during the coming week. Depending on whether Congress agrees to raise the debt ceiling before then, the ongoing negotiations could put the dollar under pressure or give it a boost, with implications for the euro and other currencies.

Dollar slips across the board early Monday in New York as the absence of a debt ceiling deal curdles risk appetite. After initial safe-haven buying in overnight trading (a knee-jerk reaction during a period of risk-aversion), the greenback is looking softer as the US session gets underway. 

Growing doubts about Europe's own debt problems contain the euro's gains. EURUSD trades up modestly 0.13% to around USd1.4380; USDJPY slips to JPY78.22; USDCHF falls sharply, by 1.65%, to CHF80.46.

Investors bid up traditional safe havens, the Swiss Franc, Japanese Yen and pushed gold to new life highs in a fresh bout of risk aversion, pressuring crude prices and equity futures.

The Canadian dollar was modestly stronger Monday, as the debt ceiling impasse continued in the U.S., pushing investors out of risk plays. 

The U.S. dollar was modestly weaker Monday morning, trading at CAD0.9466 from CAD0.9480 late Friday.
Market expectation
For the most part markets remain calm today given the lack of fundamental data, yet the looming US debt crisis leads to a mostly risk-off sentiment.

If the USDCAD happens to extend recent bearish tendencies, immediate support is listed at CAD0.9424 (Daily lwo Jul 21), CAD0.9400 (Psychological Level) and CAD0.9395 (Lower Bolli Bands). To the upside, resistance is placed at CAD0.9530 (Jul 22 High, 10-DMA), CAD0.9608 (21-Day MA) and CAD0.9635 (Daily High Jul 18), dealers said.

If the Aussie manages to break above USD1.0860, immediate resistance levels could be faced at USD1.0890 and USD1.0920, while on the other hand, supports could be found at the USD1.0800/1.0790 zone and USD1.0750, report technical analysts.