Financial Advisor

Daily Report: Dollar Lower against Swiss Franc on US Debt Ceiling Deadlock


Dollar is notably lower against Swiss Franc as the week starts. The deadlock in raising the US debt ceiling raised concerns for a default in the country's credit rating and hurt market sentiment. U.S. House Speaker John Boehner over the weekend claimed that a deal 'was never really close'. The Republicans are not pushing a 2-stage process which would involve an immediate boost to the limit and then policymakers would continue to negotiate a long-term debt-reduction deal. While Boehner stressed that it's 'not physically possible to do all of this in one step', Democrats refused to accept short-term extension with President Barack Obama threatening to veto such a measure. The stalemate in the US Congress triggered S&P to warn of a possible downgrade again. On July 21, the rating agency said that there's at least 50% that US' AAA rating will be cut within 3 months if the debt ceiling cannot be reached by August 2. the development this week will be closely watched by all market participants. 

Euro is relatively steady against news that Moody's cut Greek government debt ratings three notches to Ca into junk territory. Moody's noted that a default was "virtually 100%" even though the EU "proposed debt exchanges will increase the likelihood that Greece will be able to stabilize and eventually reduce its overall debt burden." Greece will face "medium-term solvency challenges: its stock of debt will still be well in excess of 100% of (gross domestic product) for many years and it will still face very significant implementation risks to fiscal and economic reform." Ireland Prime Minister Enda Kenny said over the weekend that Ireland "does not need nor seek a default". Kenny said that a default would be an "economic calamity" and would shut Ireland off from "the private debt markets for even longer," risking "ongoing funding of the state and could overnight close down vital public services". 

Australian PPI rose more than expected by 0.8% qoq, 3.4% yoy in Q2 but provided little support to the Aussie. Wednesday's CPI will be a main focus and is expected to rise 0.7% qoq, 3.4% yoy, up from Q1's 1.6% qoq, 3.3% yoy. Opinions on the next RBA move are mixed. The bank kept rates unchanged since last November. An economic report released over the weekend argued that RBA would hike three times in the coming year as mining boom boosts the economy. Though, it's generally not expected to happen in Q3 as global outlook remains uncertain. Nevertheless, note again that back two weeks again, Westpac, one of Australia's largest banks, did argue that RBA would cut rates by 100 basis point over the next year. 

Swiss Franc's strength is also seen against other major currencies as the week starts. GBP/CHF's sharp decline today argues that last week's recovery is finished at 1.3438 already. Also, GBP/CHF is still staying comfortably inside the falling channel from 1.5183. We're cautiously bearish for a test on 1.3038 low first. Break there will confirm down trend resumption and should target 161.8% projection of 1.5691 to 1.4168 from 1.5183 at 1.2719 next. 


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