Us debt ceiling talks loom, but neither markets nor the dollar seem worried;
① As the clock winds down on the US debt ceiling negotiations, markets seem reassured that a compromise will be reached. U.S. stocks closed slightly higher on Monday, with the VIX fear index closing at a calm 17.2 level, but failure to make real progress on Tuesday could trigger a huge sell-off in risky assets.
(2) U.S. President Joe Biden will leave Washington on Wednesday for the Group of Seven meeting in Japan. Any deal would have to pass both the House and Senate, suggesting that time is running out before the deadline. Treasury officials say the deadline could come as soon as June 1.
(3) Democrats and Republicans remain far apart on their positions on taxes, energy regulations and spending levels. Treasury Secretary Janet Yellen has repeatedly warned of a “constitutional crisis” and an “economic and financial catastrophe” for the U.S. and global economies if Congress does not raise the $31.4 trillion federal debt limit.
④ The dollar’s initial reaction to an imminent default could be a sharp sell-off, but as global markets plunge, safe-haven flows could return to the greenback.
⑤ Technically, the daily momentum indicator and the 5-day, 10-day, 21-day moving average of the U.S. dollar index rose slightly, while the 21-day Bollingband widened. The daily chart shows the potential for further gains. Support is seen at Friday’s European session low of 101.93, then the 21-dma / 10-dma of 101.74/77. Initial resistance stands at 102.73(38.2% retracement of 2023 decline) and Monday’s high of 102.
