Time running out for US politicians

FX markets are in for a choppy few hours of trade, with various political headlines continuing to hit the wires as we fast approach the deadline.

- Leaders reportedly close to a deal 
- USD/JPY facing resistance at ¥99
- AUD holds firm against the USD
- Pound in focus ahead of jobs numbers

FX markets are in for a choppy few hours of trade, with various political headlines continuing to hit the wires as we fast approach the deadline. At the end of US trade, headlines out of Washington suggested the House will put forward a new proposal containing changes to Obamacare. Markets also had to contend with Fitch on the wires saying the US AAA rating is on watch over the debt debate.  The latest headlines suggest a deal will be sealed within hours, with President Barack Obama set to meet US treasury secretary Lew.

At the start of Asian trade, we saw some modest risk-aversion with the yen being the destination of choice. USD/JPY tested 98 where it found some support and has since recovered to 98.54 with a deal looking like it is getting closer. USD/JPY is likely to dictate the risk-on/risk-off sentiment in Asian trade today and any further gains would certainly indicate a buoyant risk tone. As I highlighted yesterday, the pair will face some resistance in the 99 region before we can really see it extend its gains.

AUD holds firm against the USD

Moves in the risk currency space are actually quite confusing, with the euro and pound giving up some ground to the USD on talk of a deal while the AUD holds firm. AUD/USD has been threatening to push higher all week and yesterday’s RBA minutes gave it further impetus. The pair finally pipped the September 19 high when the no-taper decision was announced and remains sidelined at around 0.953. AUD/USD is likely to remain steady as traders wait for cues from the US and a data dump from China at the end of the week. Once the US political farce is out of the way, the AUD is likely to consolidate around 0.96 against the greenback. Glenn Stevens will be speaking on Friday and he’s likely to elaborate on the RBA’s stance on the local currency.

Pound in focus ahead of jobs numbers

EUR/USD plunged from around 1.357 to a low of 1.348, but has since found some stability at 1.35. GBP/USD also hasn’t done much and remains within striking distance of 1.60. It’s a really tough play to call FX markets at the moment as I expect to see a binary event from the US political situation, which will ultimately dictate how the USD trades in the near term. On the economic front, ECB President Mario Draghi will be on the wires along with jobs numbers out of the UK. A drop in the claimant count change is expected, while the unemployment rate is likely to remain steady at 7.7%. In the US, the Beige Book is released and Fed member George speaks. 

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