It’s amazing how the lack of any progress creates progress in and of itself. USD fundamental data remained mixed as better than expected Unemployment Claims, Home Sales and CB Consumer Confidence data were overshadowed by disappointing GDP figures and the debt crises itself. The EUR/USD had a brief rally earlier in the week but gave back all of its gains to settle at 1.43971 just 31 pips removed from where it started. With the US on the brink of one of its worst economic blemishes to date the euro remained flat as investors seemed unable to determine the lesser of two evils. This occurred despite the strong technical inclinations for a USD rally.
The mixed messages suggest traders are truly undecided on the direction of the pair and have unsavory feelings towards both. In the event an amicable resolution is reached over the weekend or early next week on US debt ceiling, traders may be in for a long downward spiral. If such an agreement is viewed as insufficient or fails to matriculate entirely, we may be gearing up for an epic run on the dollar as it is already facing pressure across just about every currency.
This notion however is not limited to EUR/USD. This week saw record lows for the dollar against the loonie, kiwi, franc and yen with no end to the rally in sight. The loonie and franc in particular are beginning to come into their own as reserve currencies rallying in lieu of the dollar as the week brought with it somber economic data from nations across the globe. The golden rule of thumb, what goes up must come down, will sooner or later come to fruition. How high it may go is anyone’s guess although the next few days should be telling. If in fact an agreement is reached that satisfies investors concerns and wards off a looming credit downgrade, we may see a massive correction as investors across the board scramble to take profits before Isaac Newton’s infamous rule sets in. If an agreement is not reached, or a downgrade occurs nonetheless, today’s highs may become tomorrow’s levels of support for a very long time to come.