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Forex: Market Looks for Dollar, Risk Trend Settlement on Debt Deal

Forex: Market Looks for Dollar, Risk Trend Settlement on Debt Deal

John Kicklighter, Chief Strategist

Talking Points:

• The US Senate approved a debt ceiling deal that looks likely to relieve the government standoff

• Despite the positive outcome, the immediate dollar and risk (S&P 500) reaction was reserved

• A relief rally for currency and capital markets is temporary, and a return to risk trends inevitable

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Coming down to the wire, the US government worked out a deal to push back the debt ceiling and reopen the Federal government. With the House of Representatives and President still required to sign off on the bill, their is a lingering risk that the deal can break down and send sentiment reeling; but expectations are firmly rooted. Yet, against this level of expectation, the S&P 500 wouldn't overtake its record high nor would the US dollar leverage a meaningful rally. There is a 'relief' rally that both risk trends and the greenback can exploit, but the amount of premium behind this short-term situation remains to be seen. Should we pass this adjustment, dominant fundmental themes can kick back in with very different results than current fundamental scenarios are projecting. We discuss the debt deal and risk trends in today's video.

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DailyFX provides forex news and technical analysis on the trends that influence the global currency markets.