07, October 2013

EUR/USD (a 4-hour chart)

EUR/USD (a 4-hour chart)

The U.S. dollar continued to fall while stocks fell more than 1% amid growing fears that the U.S. government would default on its debt. Senate refuses to do anything beyond the pure cost of quarantine, while the White House refuses to turn off the available healthcare spending law.

Week-end passed and as a result the risk of default has increased. However, many analytics believe that Congress and/or the Obama administration will not allow the U.S. government to miss a payment of interest, because the consequences would be disastrous. Given that we do not see a collapse of the dollar and stocks, most investors are also likely to believe that the probability of default is very low.

Financial Times: "The U.S. Treasury and the IMF warned of dire consequences of default".

The FT article says: "U.S. banks have received additional funds through ATMs, investors sold Treasuries and U.S. stocks on Thursday as a sign of concern that Washington runs the risk of default on its debt at the end of this month. Politicians and business leaders have expressed great concern that Republicans and Democrats will not reach an agreement until October 17 to raise the debt ceiling, Christine Lagarde, managing director of the International Monetary Fund has warned of dire consequences for the rest of the world, if not out of impasse. "Shutting down of the government is bad enough, but the failure to raise the debt ceiling will be much worse," she said. The article does not say a lot. However, concerns are growing.