US Dollar Index Defies U.S. Government Closure, Eyes on ECB Conference - 2.10.2013

Despite the U.S. government shut down the Wall Street closed in green yesterday looking for a quick break through of the budget gridlock. The S&P 500 rose by 0.80% to 1,695, Dow Jones Industrial Average Index gained 0.41% to 15,191.70 and NASDAQ climbed by 1.23%. The US dollar index recovered against previous expectations that uncertainty would weigh on the greenback. The US dollar index bounced up from yesterday support at 79.84 to as high as 80.25.

Moreover, market participants are betting that U.S government closure would be short and soon Republican and Democrats would find a solution. However, should we see further enhancement of gap that separates them, uncertainty would definitely weigh over risk appetite and stocks would start the downside. Ahead lies one more high risk event, on October 17 measures applied earlier to avoid hitting U.S. borrowing limit would be outdated and current dispute between lawmakers could impact their decision also on Debt Ceiling, driving U.S government to default.

The Euro against the greenback softened from 8-month peak at 1.3587 to support at 1.3506 ahead of ECB rate decision today. Mario Draghi is expected to hold key rate unchanged at record low at 0.50% while he said the previous week that another round of long-term refinancing operation (LTRO) is still a choice.

Thus, investors are closely monitoring ECB press conference today for further clues, generally though is not anticipated another round of LTRO to be announced today but more likely until the end of the year or ECB is using it as a threat to hold market interest rates under control. In any way Mario Draghi could be more dovish today in an attempt to ease the common currency further and support its economy. To close, another risk for Euro-zone financial stability is that Italian Prime Minister faces today confidence vote by the parliament after Berlusconi’s party withdrew from government coalition, however many RPs of Berlusconi’s party said that would vote for Prime minister Enrico Letta to keep its government afloat.

Elsewhere, the USDJPY is sliding on a slippery slope reaching new monthly low at 97.35 since the Japanese Yen is appreciated as a safe haven currency. The AUDUSD was under selling pressure falling by -0.62% from 0.9406 to 0.9348, on Wednesday morning amid sluggish Australian Building Approvals and widening Trade Deficit.