As the Syrian crisis steps down from centre stage, the U.S Congress finds itself free to return to its bi-partisan bickering. Without a deal regarding the budget by the end of the week, much of the Federal Government will shut down as of October 1. The Treasury, should this take place, will run out of funds by mid November. Various options are on the table, but the deadlock is as much based on principle, as on re-election strategies, as several members of Congress are up for re-election next year. One can appreciate the fundamental importance of the latter.
The last time such an event happened was in October 1994 and by November 14, major portions of the federal government suspended operations. A resolution was found in the spring 1995.
The EUR strengthened from January 1994 from 1.1590 to the first of July 1995, where it toped at 1.3450 and fell until to 1.2352 by the end of the year. The shut-down did not alter the trend, except for a brief counter reaction from 1.2620 to 1.2147 during November. The most significant event I could find for the month was that Bill Gates bought Leonardo da Vinci’s “Codex” for $30,800,000 !
The second event of importance will be the result of the FOMC meeting on the 17th and the 18th. Given the political and economic environment, the consensus expects a reduction in QE of $15bn a months to $70 bn. We can only speculate that Chairman Bernanke feels responsible for the QE program, and having initiated it, will want to be responsible for initiating its slowdown.
This has the advantage, that his successor will, basically, inherit a policy that is pretty much on auto-pilot. It will avoid a debate on the subject during the confirmation hearings.
This takes care of our conundrum regarding the potential policy influences that the new chairman might have, at least until 2016, or, when the unemployment rates falls under 6.5%.
So despite all the noise, it seems fair to expect, with the current foreseeable global trends that the EURUSD will stay in its range of 1.3450 to 1.2750.
We have taken this morning a half a position short EURUSD at 1.3360 .
PP 1.3263, R1 1.3359, R2 1.3422, R3 1.3580
S1 1.3200, S2 1.3104, S3 1.2945