DOLLAR WEAKENS AS GOVERNMENT SHUTDOWN LOOMS

Today, the US dollar continued its downward trend against the major currencies as the threat of a government shutdown loomed. The dollar index was down 0.52% while the yield on the 10-year treasury rose to the highest level in three years.

Yesterday, the congress passed a short-term spending bill which is expected to be tabled in the senate today. Problem is, the senate republicans don’t have the numbers to pass the bill and democrats have refused to accept a bill that excludes the dreamers. On his part, Trump has vowed not to sign a bill that excludes his wall.

The euro rose against the dollar as a result of the weakness of the dollar and the optimism that the Social Democratic Party (SDP) of Germany will accept to negotiate with Merkel’s Christian Democratic Union (CDU). In addition, there was talk that European Central Bank (ECB) would move to end the Quantitative Easing (QE) program. This would lead to a gradual pace of higher interest rates.

The pound lost 0.30% of its value against the dollar. This came after the release of the retail sales by the Office of National Statistics (ONS). According to the organization, the December MoM retail sales declined by 1.5%, which was higher than the expected 0.6%. MoM core retail sales for December declined by 1.6% against the expected 0.8%.

Crude oil dropped by 1.5% after EIA reported that the United States was on pace to overtake Saudi Arabia and Russia to become the world’s largest oil exporter. The news came at a difficult time for OPEC countries, which have recently moved to limit the supply of crude oil.

The Canadian dollar weakened against the dollar today. Yesterday, the Bank of Canada’s MPC met and agreed to raise interest rates by 25 basis points amidst worries that Trump would exit the United States from NAFTA. Today, it was reported that Trump was losing patience over the pace of negotiations.

EUR/USD

The EUR/USD pair is struggling to find direction. Traders are trying to digest the implications of a government shutdown. They are also paying closer attention to the happenings in Germany where SDP and CDU are expected to start coalition talks. At this stage, with the ADX so low, the pair could breakout in either direction.

GBP/USD

The pair is trading lower after UK’s disappointing retail sales. The pair is currently trading below the 50-period moving average. This is an indication that the pair could continue going lower, potentially up to the 1.3802 level. However, traders should use the ADX indicator to gauge the momentum of the downward trend.

USD/JPY

Yesterday, the USD/JPY pair started to fall from a high of 111.47 to the current low of 110.49. In that process, the pair formed a complete downward Elliot Wave pattern. The pair is now trying to find direction and has formed a double bottom position. Traders should wait for the progress of the government shutdown before starting new positions.