Risk Aversion Due to Italy’s Political Turmoil, U.S Probable Shutdown, CNY Disappointing PMI - 30.9.2013

Monday opening was not boring for sure as many global events have moved the FX market. To begin with, Italy went into a political turmoil during the weekend as five ministers members of the former Prime Minister Silvio Berlusconi party resigned from Enrico Letta’s current government. Letta decided to seek for confidence vote on October 2 from the parliament to remain in power.

The third biggest economy of the Euro-zone enters into political crisis and may need to go for elections again in less than a year time. Political uncertainty increases risk of sovereign debt management in Italy with Italian 10-Year yield climbing from 4.53% on Friday to 4.73% today. The EURUSD became heavier just below resistance at 1.3569 and retreated early today at 1.3479, overall remains in 1.3569/1.3464 range and likely to continue like that as both Euro and greenback are slashed by negative developments.

We consider key drivers of the currency markets this week, the previously addressed Italian political crisis, probable U.S government shutdown and Non-Farm Payrolls on Friday preceded by ADP Employment Report on Wednesday, as well as major economies’ PMI indicators during the week. Therefore, this week is perceived a risky one and volatile week to be, so we are going to trade with caution.

First of all US Government is likely not to have money to pay federal workers from tomorrow, although interest payments are prioritized to receive payments and avoid default, because the lawmakers did not agree to raise borrowing limit. In any case, we expect to see a last minute development in the Congress and eventually avoid shutdown. In addition to that earlier today Chinese HSBC Manufacturing PMI stood at 50.2 down from expected and previous figure at 51.2, disappointing market participants and further increasing risk aversion.

The USDJPY slipped lower since the Japanese Yen is considered safe haven, thus attracting investors’ attention. The pair dropped to support at 97.69, breaching rising trend line of the symmetrical triangle against projections of an up rise break through, thus weakness may prevail in the following trading.

USDJPY

To close, risk aversion was also reflected on the Aussie vs US dollar currency pair, falling earlier today to a two week low at 0.9284, maintaining its recently established downtrend that started after peaking at 0.9521. Moreover, the safer swissy was gaining ground as investors were seeking for safer currenies, thus the USDCHF began on monday open in negative trading, easing from 0.9067 to 0.9045 .