Thursday, September 26, 2013

US Debt Ceiling crisis is now up front and centre

The Debt Ceiling shenanigans in the US Congress are now making themselves felt on the value of the US dollar. Technically, the Euro versus the USD (above) is demonstrating a very clear-cut upward trend, which is being maintained after the recent breakout.

All consideration of a possible end to Quantitative Easing (QE) in the USA is now firmly on the back burner, with some commentators opining that tapering may not even occur this year. Certainly the Fed has demonstrated that it is not going to be rushed in this regard.

That other indicator of the health or otherwise of the Greenback, gold, took a jump yesterday that was pronounced and which would be contra-indicated if the Debt Ceiling were not up front and centre at the moment.

What happened during the last Debt Ceiling crisis in 2011 might be instructive here:

Gold was pushed to what subsequently turned out to be its highest level ever on safe haven considerations.

There is one serious caveat – the warning that past performance is not indicative of the future was never so apt as in a case like this. In 2011 the market found itself in uncharted waters. The very fact that we have been here before, and the sky did not fall in, will have at least some bearing on market sentiment this time around.

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