The dollar is trading higher before the release of Q2 GDP numbers from both the US and Canada. The US debt crisis is the most pressing issue but euro zone events have been driving the majors this morning.
A vote in the House to raise the US debt limit was scrapped yesterday as Republicans realized they would not receive enough votes to get the legislation through and have since went back to the drawing board. Regular readers of this forex trading blog will know we expect some sort of last minute agreement to be reached between Democrats and Republicans though time is running out with only 4-days remaining before the US Treasury will potentially default. Should a compromise be reached it may not be enough to save the AAA credit rating the US currently holds. Comments from S&P note the ratings agency is looking for budget deficit cuts in the range of $4 trillion. Neither of the two political parties has presented a plan that comes close to this number. A failure to raise the debt ceiling could send the dollar reeling in the near term while a ratings downgrade might bring about long-term weakness in the US dollar.
Traders were reminded today that the European debt crisis hasn’t gone anywhere. Spain was placed on review for a rating downgrade by Moody’s citing increased budget deficits and the 2nd Greek bailout which could increase the risk of bondholder footing the bill for any additional rescue package. The EUR/USD was briefly sent below yesterday’s low of 1.4250 after reports hit the wires speculating the EFSF may not be ready to provide Greece with the next tranche of funding by mid-September. The EUR/USD has a 50% retracement from the June 12th low to the July high at 1.4185 and 61% at 1.4100. Further support is located at 1.4070. Resistance is near 1.4320-50.
GDP for both the US and Canada will be released later today and expectations are not high for either of the North American countries. Consensus forecasts for the US are at 1.7%. The growth numbers nothing to brag home about but comparing to the UK which only managed to post a 0.2% increase, the US numbers don’t look half bad. Only 0.1% growth is forecasted from Canada. The USD/CAD, a pair that typically falls with the “risk-on” trade and rises with “risk-off” sentiment is attempting to establish a beachhead above the 0.9530 level. Resistance for the pair comes is at 0.9620 off of the trend line that falls from the June high. Support is found at this month’s low at 0.9400.
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