US Treasury Department works hard trying to raise enough money to cover Federal deficit. Next week alone, agency is expected to bring over $81 billion, in an attempt to finance unprecedented budgetery shortfall, which, this year alone, is expected to reach over $1.4 trillion. Somewhat smaller, yet still huge deficits are projected for the next decade, topping at combined additional $10 trillion, or so. So far Treasury managed to do a good job of raising funds, without pushing interest rates too high, even in difficult climate of ever declining US Dollar.  However, new problem is on the horizon- the Federal Statutory Debt Limit.

Federal government debt is limited by act of Congress, which sets a debt ceiling. Currently this figure stands at $12.1 trillion and is expected to be reached by December. Congress must pass a legislation needed to boost that limit and avoid an unprecedented default on the nation’s debt obligations. In theory. Nobody seriously entertains this notion, fully expecting the legislation to pass. Problem is, this will have to be done every year in order to accommodate ever swelling spending. Issue will be brought on the front pages of the media, because it will provide some politicians perfect platform for heated speeches and angry rhetoric. Never mind that the “ceiling” is already largely symbolic. It doesn’t cover some expenses. For example, defense budget can go above this limit, as well as other “emergency” spending needs. Nonetheless, situation will get attention and one could have some influence on the USD.

FED interest rate decision will be announced today, and this is almost guaranteed to play with Dollar pairs. Expectation is for the non-existing interest to remain next to invisible, but that’s not what the markets will be looking for. Attention will go to future “intentions” and ”hints”. Is the tone of announcement “hawkish” enough? This activity reminds me of palm or tarot reading, rather than legit analysis, so I leave it for others. True to fashion, I will not be trading during this time, but currencies have been active all day and so was I.

Another beast trade, different than yesterday. This one set on hourly chart. Price painted a nice resistance at just under 149.00, with 100 SMA flattening right there as well. Move to 149 created a nice breakout situation, which was good for 100 pips. I am not looking for more here, not right now. We must remember that lately JPY has been reacting strongly during FED news releases, and today could be no exception. Not all Yen pairs acted in the same way, some are lagging behind the beast.

EUR-JPY, for example only now is reaching the equivalent of the breakout level in the beast. One could try to go long here, at 134.50, but the objective would have to be in the range of 40-50 pips, small enough to be out before FED news hit the wires. Euro-Yen is not alone in shaping differently than GBP-JPY. Almost all Yen pairs are marching to their own drum beats. This means that JPY is not in play, and all moves are caused on merits, or lack of, in cross currencies.

Euro-Pound pair has slowed down recently after nice moves of last two weeks. Nothing unusual about it. Question is, how long before more decisive move either way starts? At this point I favor another leg down, on a breakout at 0.8900, targeting about 90-100 pips. I would like to see one more bounce before that and see the price linger within 0.8910-0.9050 range for few more days, but there is no way of making it happen. I must adjust to what the market does. Once the dust settles after FED rate decision, I’ll take a look at the commodity currencies and see if any trades are forming there.

Mike K.