Forex: Optimism of Debt Deal May Curb Risk Run, Bolster Dollar
• US lawmakers continue to debate a debt deal, but a resolution is still the most likely outcome
• Equities show considerable confidence in a favorable outcome - diminishing a possible 'relief rally'
• If both risk trends and the dollar climb on an 11th hour save, the currency may have further to run
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Despite the market's optimism, US policymakers were unable to resolve the US debt ceiling impasse. Looking at the dramatic rebound and positive close of the S&P 500 Monday, market participants are still confident it will be resolved. A deal is the most likely outcome - as the alternative could be disastrous for the US on many levels - but pre-positioning could undermine the bullish reaction for risk benchmarks if it is indeed realized. The US dollar may be better positioning for the short-term response to a deal - or at the very least it could complicate what many believe are straightforward trade setups like AUDUSD or EURUSD. In today's video, we cover this difficult theme along with other volatility-inducing event risk (UK CPI and New Zealand CPI).
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DailyFX provides forex news and technical analysis on the trends that influence the global currency markets.