Federal Reserve QE tapering concerns have been pushed to the back-burner as a potential government shutdown Oct 1 deadline is quickly approaching and the political rhetoric is starting to increase. Congress is faced with two self-imposed issues, a continuing resolution and the debt ceiling. The continuing resolution is legislation created to fund the government as a stop-gap measure because our US Congressman are not doing their jobs of creating and approving a budget. The US government has been running without a budget for years and continues to spend up to it’s self- imposed debt ceiling. Creating a reasonable budget requires making spending cuts which seems an impossible task given the politics involved. Thus, spending cut (or sequestration) conditions get attached to debt increases as a way to reduce the ever increasing spiral of debt. So over the next week, there will be much discussion about a continuing resolution and raising the debt ceiling. In the end, the can will be kicked down the road with a new continuing resolution and the debt ceiling will be raised with additional sequestration. In the meantime, the markets will be volatility as the ebb and flow of political debates get aired.
This morning a couple of Fed presidents had speeches and Draghi of the ECB held a long press conference as a major bank in Italy has defaulted on their bonds by stopping their interest payments. The Italian bank announcement corresponded with the beginning of today’s down movement pre-market, sending price through and below the DTG long 69.50 level. As posted on today’s sheet, the 01/02 was a good short pullback area. The ES showed a little bullish strength at the cash open, closing the gap back to yesterday’s close. On the retest of the area, seller came in and price unfolded into a short order flow opportunity in the direction of the morning’s trend. This opportunity is today’s example trade.
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