The cable is still trading just below 1.60 psychological level after it could be under pinned by the risk appetite returning to the market with greater hope for reaching a compromise about the debt ceiling and the US governmental partial shutdown.

The risk appetite has been supported from another side by the Fed’s officials’ comments which started to show the market tendency to having no cut of the current QE for longer time that what has been foreseen before the current political conflict about the debt ceiling in US as the Federal Reserve of St. Louis James Bullard who is a voter on the monetary policy this year said that it is less likely to reduce its bond-buying program this month with the current fiscal problems in Washington which have changed the odds about it and also John Williams who is  the Federal Reserve Bank of San Francisco President indicated that the current monetary stimulus remains necessary and it will support faster economic growth next year and cutting it should be by a gradual way.

The greenback came under pressure across the broad following these comments which came following nominating the Fed’s vice president Yellen who encourages stimulating the economy further as a successor of Bernanke and the cable which has been undermined by August dovish industrial and manufacturing productions data could rebound to 1.598 from 1.5913 which has been reached yesterday.

While there was no change to be brought to the markets from BOE expected decision of keeping its APP at Stg375b as it has been since July 2012 and also the interest rate at 0.5% as it has been since Feb 2009 maintaining its forward guidance of keeping this scale of stimulation at this level till falling of ILO unemployment rate to get down to 7% which is expected to be later in 2016 from 7.7% currently.

The US treasuries yields could be also well supported with this tendency of carrying risk again which pushed the global equities markets up by the end of the week while the market is waiting for adopting new dissections about the debt ceiling today by god’s will can reach even a temporary solution of the current critical situation with the US treasuries running out of cash as the US treasury secretary Jacob J. Lew has warned the Congress previously saying that there is strong need to pass a debt-ceiling increase deal by Oct. 17 otherwise the U.S. will not be able to meet its payments as on the 17th of this month, the treasury will not be able to borrow.

Lew has said previously that US will have only $30 billion in cash to meet its bills on that date the Congressional Budget Office expected this cash to not stand behind the end of this month.

The markets believe now more than before in having a greater role of the Fed to restore confidence by its QE policy as even with the probability of reaching a deal about the debt ceiling in Washington, this can carry lower governmental spending or higher taxes if there is to be reached deal as that can erode too from the US economic growth.

So, there can be strong need to this current monetary policy of the Fed which takes a financial shape by its current largest scale of buying US MBS and US treasuries monthly for keeping the cost of borrowing down as much as it is possible for the longest possible period.

But this can lead to weaker US dollar to have growth in a time of having lower financial stimulation in US increasing the chances of having higher commodities prices and that can lead to higher global inflation pressure before it is to form a risk in US while the Fed is having the tolerance to have the inflation rate 0.5% above its 2% yearly target as it has repeated several times since it has started its third QE third round last year and you can see clearly that there is no serious worries about the inflation from the Fed’s official talking and you can see also that the PCE which is the Fed’s favorite gauge of inflation showing lower pressure on the Fed for tackling the inflation upside risks as it came in August down to 1.2% yearly from 1.4% in July has been revised down to 1.3%.

God willing, the cable can meet now in the case of getting over 1.60 psychological level its recent lower high at 1.6123 before its recent peak at 1.626 and surpassing it can be faced by a higher resisting level at its recorded high of this year which has been reached in the beginning of it after avoiding the fiscal cliff in US at 1.6380 while it can be exposed again of forming another lower high, in the case of having no ability to ascend again and in case of retreating down below 1.5913, it can be met by supporting levels 1.5884, 1.5684, 1.5561, 1.5521, 1.5461, 1.5423, 1.5204, 1.5102 before the psychological level at 1.50


Kind Regards

FX Market Strategist

Walid Salah El Din

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