Wednesday, 30 October 2013

The Washington Circus Continues To Entertain

Ralph Shell, Excel Analyst

Today, Wednesday October 30th, it was Kathleen Sebelius's turn to testify before the US Congress in Washington. 

As head of Health and Human Services, she is the point person for the malfunctioning web site, HealthCare.gov.  This, of course, is the gateway to the Affordable Care Act where millions need to examine, compare, and sign up for the health care program of their choice.  The launch of this site has not gone well, and was down this morning as Secretary Sebelius was about to testify.  There are new people trying to correct the website and claim they will have it fixed by the end of November.

Excel Markets ECN Forex Broker Demo Contest Mrs. Sebelius is no stranger to politics.  Her last elected office was Governor of the State of Kansas but her family gave her an earlier start.  Her father was Jack Gilligan, a former Ohio Congressman (D) and Governor of Ohio.  Not a lawyer, Sebelius instead got her MBA from the University of Kansas.  Her first job, for nine years, was chief lobbyist for the Kansas Trial Lawyers Association.

Some claim that Sebelius's days at HHS are numbered.  She will either be out of the office or no longer in charge of the health care transition.  It appears, however, she is taking the fall for decisions made by others.  Consider:

"First Lady Michelle Obama’s Princeton classmate is a top executive at the company that earned the contract to build the failed Obamacare.

Toni Townes-Whitley, Princeton class of ’85, is senior vice president at CGI Federal, which earned the no-bid contract to build the $678 million Obamacare enrollment website at Healthcare.gov. CGI Federal is the U.S. arm of a Canadian company.

Townes-Whitley and her Princeton classmate Michelle Obama are both members of the Association of Black Princeton Alumni."

To what extent does turmoil like this affect markets, and the forex markets in particular? 

Well, make no mistake that concern about the AHA is restricting new hires, and probably new business formations.  In other words, the hard economic numbers, as well as producer and consumer surveys, are influenced by the actions currently being taken in Washington.

An example of the economic results from the political maneuvering is found in this statement from the Fed via Market Watch:

“Taking into account the extent of federal fiscal retrenchment over the past year, the [Fed] sees the improvement in economic activity and labor market conditions since it began its asset purchase program as consistent with growing underlying strength in the broader economy,” the central bank said in a statement. “However, the committee decided to await more evidence that progress will be sustained before adjusting the pace of its purchases,” the Fed said."

The Fed has given the market what was anticipated today.  With the weak economy, any reduction in the bond buying activity is most likely delayed until after the beginning of 2014.  The USD firmed on the news meaning this is what the market has discounted.

Click to Enlarge EURUSD Daily Currency Chart

Looking at the EURUSD, (FXE UDN UUP), it looks like the run above 1.38 has given us a top, not a bad move from under 1.32 in early September.  A retracement to the 1.36 handle would not be a surprise. 

Currently, the CFTC is trying to update their tardy COT reports.  This afternoon, they released one for the week of October 15th which showed a reduction in euro spec longs to 52.9K, down from 64K in the prior week.  Longs were taking profits.

Click to Enlarge EURUSD Weekly Currency Chart

There are possibilities for more acrimony coming from Washington. 

Today, Paul Ryan warned that the budget talks will be a dead issue if the Democrats propose tax increases.  The deficit has come down this year but still it is headed for the highest yearly deficit of any year in US history prior to 2008.

Another potential conflict may come with the confirmation hearing for Janet Yellen.  It looks like the anti-Fed politician team of Ron and Rand Paul are forming a tag team to oppose her nomination. 

While the turmoil might be USD bearish, their opposition to more QE might be friendly.  This need be monitored closely.  As always, mind your money.
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