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US Debt Ceiling is Eternal Problem – Oct 14 – Oct 18

October 14, 2013

Any Short term solution to the temporary US shutdown will be time buying strategy to avoid possible global financial turbulence. Temporary extension of debt ceiling limit expiry date and funding would further confirm that the US government and the opposition are not willing to compromise on the issues and they are no closer to the agreement. If talks are unsuccessful then President Obama can use his constitutional right by signing the bill to increase debt limit that will have validity until November 22, but the government shutdown will remain in place.
It is mindboggling that why the politicians prefer to wait until last moment and why they always chose/agree to extend date. It means that negotiations during all these years have been unproductive and agreeing to a future date is a formality and face-saving strategy.
Then what is the purpose of creating fuss and agreeing to meet again at a future date ? I thing the idea behind such meetings/gathering is to show the world that they are extremely concerned/serious about the issue, which according to historical fact is untrue. But probably because they are well aware of extent of damage that has reached to unmanageable limits they know that they do not have a choice and have to agree at some point to normalize the market.
To further elaborate my point of view, though I am not sure if the imposition of debt limit is helpful for fiscal accountability or not, but if we look at the decade old history, since 2002 the US debt ceiling limit has been frequently raised from USD 5.950 Trillion to USD 16.699 that was hit in May this year. Currently US Treasury is paying bills through some extraordinary measures. So what does the congressman discuss when they meet? Who should be held responsible for fiscal indiscipline as both the parties have won US elections and have represented the country during all these years? What progress and compromises they have made after they got elected. This should be made public because it the future generations that will have to bear the brunt. Political scoring will do no good to the nation or the economy.
History suggests that debt ceiling limit that came into effect in 1917 is simply a documentary requirement asking for approval to spend more money, without revenue generation at same proportion that causes debt ratio to rise. Since last 4-decades, obtaining permission for debt ceiling enhancement has became a regular feature.
Meanwhile, market is surely heading for a crucial week, as both, temporary short-term arrangement and default will dent the market sentiment. Weak asset could face turbulent times and it is especially worst choice for stock market and emerging market economies. It can have spillover effect on the developed economies too, unless surprise agreement is reached on the ongoing debt crisis. While, due to incomplete economic data information released from US, some of the economic figures released in US may not be of much relevance for the traders. However, release of economic data from Europe and UK may give some reason to trade. Market will remain directionless and uncertainty to prevail.

GOLD @ 1271.33 = Well, I did warn last week that market will remain choppy and gold could move either way. I do not see any change in trading pattern, as gold moves will remain volatile. Last week, talk delay on debt crisis did not help gold buying, as the damage was caused by FED FOMC minutes, which clearly indicated that more Fed members are in favor of tapering. Therefore, any up move should be temporary, as gold cannot avoid pounding in future.
Upside break of $ 1285-90 zones is required for a test of $ 1300-05. Break would encourage for another test of $ 1322-25 zones. However, bias is on the down side, break of $ 1255-60 will see a push towards $ 1235. If the support fails to hold, test of $ 1191 is unavoidable in medium-term.
EURO @ 1.3541 = Euro should find support around 1.3440-50, only break risk for 1.3360. However, Euro needs to move beyond 1.3610 for 1.3650. Range for the week 1.3350 – 1.3710.
GBP @ 1.5950 = Cable is likely to remain under pressure. It needs to move beyond 1.6050 for 1.6155. However, resistance will be met on up moves. Break of 1.5860 risks for more losses.  Range for week 1.5810-1.6155.
JPY @ 98.56 = Japanese currency needs break 98.90 for test of 99.30-50 zones. Buying demand is possible on weakening of JPY that could push Yen towards 97.80-90, break is required for a test of 97.20-50. Range for the week 96.70 – 99.80.
AUD @ 0.9464 = Aussie may have enough legs to move beyond 0.9570-80 and could exhaust around 0.9540-50 zones. On dips 0.9350 is the strong support levels and only break would see losses extending towards 0.9280 before correction occurs. Range for the week 0.9250– 0.9580.

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