Optimism Returns on Possible Debt Deal on Tuesday, Aussie Gains - 15.10.2013

Hopes that US policymakers get closer to a political break through and that has improved market participants’ optimism leading risk appetite higher. US equities eventually closed in positive light after beginning in negative territory, with S&P 500 advancing by 0.41%, Dow Jones Industrial increasing by 0.42% and NASDAQ gaining by 0.62%. Asian shares followed as NIKKEI 225 was by 0.26% higher and Hang Seng climbed by 0.38%.

Optimism among investors grew substantially yesterday after Harry Reid, a Senate Democrat majority leader and its Republican counterparty Mitch McConnel said that on Tuesday a bipartisan deal may be announced that would extend US debt ceiling and fund government budget. What is discussed for a short term solution is that federal government would be funded until January 15 2014 and borrowing limit would be increased until February 15. If that is the case then the real political impasse would just postponed for some months.

The Aussie against the greenback was well underpinned after the announcement that a deal on debt limit negotiation may come on Tuesday. The latter was coupled by RBA minutes of the October 1st meeting sounding slightly more hawkish than traders estimated as RBA does seem willing to reduce further the key rate. The AUDUSD climbed above yesterday resistance at 0.9485 to a more than a 3-month peak at 0.9549, we expect that further improvement of the risk sentiment is likely to raise the exchange rate towards 0.9660.

Elsewhere, the US dollar contra the Japanese Yen climbed from support at 98.08 to resistance at 98.68 underpinned by improved risk sentiment and is now getting softer. The same happened with the USDCHF, as the US policymakers said that they approach a deal for US debt ceiling the pair drew support line at 0.9065 and advanced to resistance at 0.9113.

On the data front, UK consumer price index is eyed by market participants, likely to impact GBPUSD. The British pound against the greenback has been fluctuating in 1.6016/1.5913 tight range in the recent term. In technical terms the pair formed a reversal pattern, thus chances are favoring downside.