It’s Monday 14th October and us forex traders are anticipating news from the USA about he debt ceiling and what it’s impact will be on the US Dollar. The thought of the US failing to agree the rise in the debt ceiling required for them to continue borrowing money in the bonds market to prevent default is filling many economist with fear and dread.
What Would Happen On The Forex Markets If The US Default.
We would most certainly see a fall in the value of the US Dollar, that is probably without question, but will it fall through the floor, or will it be a slower decline? This is not as easy to answer as it seems, since the price of just about everything internationally is priced in dollars so there will be a wide ranging impact whatever it might be. I read the news and there seems to be varying opinions on what the outcome might be, but I think generally it’s something that isn’t discussed much because I don’t think anyone thinks it will actually come to that. I f we look specifically at the EURUSD and what might happen in detail I think we can expect the same kind of thing to happen across the board. The EURUSD happens to be at the top of the range it’s been in for the last 3 years or so, you would expect it to shoot up to the long side if Thursday comes and there is no increase in the debt ceiling, and if there is, you could probably expect it to go back into range. However since the world economy is inextricably linked through the Dollar then anything could happen and I really wouldn’t like to call it. There could well be a market maker manoeuvre where there is no increase in the debt ceiling and they push the Dollar up to confuse traders before piling in short, whatever happens the 1.3600 level will play a major part.
The Forex Market Waits.
The US Dollar is extremely stable considering the potential impact of what is going on, but the reason for that is that the forex traders all around the world just aren’t prepared to gamble on what might happen. There is also the issue that since that the usual news announcements from the US are not being published due to the relevant government organisations being closed, this will also cause some pent up energy being released on the forex markets when these announcements are eventually published. I’m thinking that there probably will be a resolution but at the very last minute or later, this always seems to be the case with these things, I’m expecting to see on the news on Thursday evening that the US is close to a resolution and just some final details need pen putting to paper before they go ahead and keep paying their bills. There is also the Philly Fed Manufacturing announcement on Thursday which will most likely be announced since it is not directly dependant on the US government and this could play a major part in itself, it could give an indication of how much the US economy has been impacted by the close down. It is thought that each week the US government is shut it costs the country 0.25% GDP, so even when we do see a resolution we may well see the forex market drive down the US dollar. You will have traders thinking that the US dollar will strengthen once a resolution has been passed but the underlying fundamentals will still be very weak and are compounded by the impact of the closure. But as we all know the forex market is not only driven by fundamentals, it is also driven by the perception of the fundamentals, fear and greed. I think the chances of Thursday arriving with no sign of a resolution and none by the end of the week are tiny, there are currently rumblings that a resolution can be agreed on and I just can’t see whatever might be the political disagreements between the poles of the parties that the US will shoot itself in the foot so damagingly. As a forex trader I think it’s best to not think about it too much and focus on the charts, they usually tell the story, whether you can read it or not will be another matter, but as always the key to forex trading is patience and avoid getting into the market until there is clarity. It may be that in a week’s time you will be looking at one heck of a big move on the EURUSD that you wish you would have been in, but easy in hindsight it will be much more tricky at the coalface and probably will have presented you with some losing trades.