The US managed to avoid a technical default as the US Congress had approved an increase in the federal debt limit after weeks of talks.
According to Evgeny Olkhovsky, the head of the US-Canadian Association of Traders and Investors under , now investors are focused on the future of the US Dollar.
What was the price that the US politicians paid to save the USA from a tech default?
The US never was as close to default as in July 2011. Endless rounds of talks between the White House and the Congress started worrying even optimists:
· July 29th 2011. The Senate rejected Boehner’s plan - the Republican plan of saving the country. The world’s biggest economy made another step towards the abyss.
· July 31st 2011. The US President Barack Obama informed the world that the threat of default had been eliminated.
· August 1st 2011. The US House of Representatives approved the bill thus allowing an increase in the debt ceiling.
· August 1st 2011. The bill was approved by the Senate and sent to Barack Obama for signature.
What are the details of the salvation plan?
During the continuous talks the parties considered 2 major variants:
· Boehner’s plan supported by the Republicans - $3 trillion in budget spending cuts within 10 years. A debt ceiling increase should be divided in two stages: $1 trillion – immediately, $1.6 trillion – later.
· Reid’s plan supported by the Democrats – a one-time increase by $2,4 trillion with a glance at next year’s spending.
The US debt and budget. Long before August 2nd the US public debt reached its limit of $14,3 trillion while the budget deficit was roughly equal to $1.5 trillion.
The plan. After the bill was approved, the plan took effect. It implies 3 rounds of increasing the debt limit. As a result, the limit may be increased by $2.1- 2.4 trillion.
Budget spending reduction. According to the plan, the US budget deficit will be reduced by $2.1 trillion within the next 10 years.
What was the market reaction?
After the Senate rejected the bill on July 29th, the US markets started being nervous. On Friday Dow Jones lost 0.79%, S&P500 declined by 0,65%, NASDAQ lost 0,36%.
After Obama brought positive news, Nikkei gained 1,94% and exceeded the level of 10.000 pts for the first time over the last 3 years. The US Dollar also gained against some other majors. Crude oil futures grew by 1,6%.
However, the successful resolution of the problem failed to cause a rally in the US stock market. S&P lost 0,4%, NASDAQ –0,4%, DOW JONES –0,09%. All the major European, Asian and Russian stock indexes declined as well. As for the reasons, some experts say that the US authorities gave investors to understand that the country’s economic potential is weak. Moreover, even after the resolution, there is still a threat that some rating agencies may downgrade the US sovereign rating.
US Dollar: market perspectives
According to the Department of Masterforex-V trading system , after breaking the bullish sloping channel the USD index is formed a downswing along the major downtrend and a “moment of truth” of H4 against it. If the support levels located at 73,55 and 72,86 are broken, the price will initiate wave a(C ) or C of the wave level higher than Weekly. A retracement against the major downtrend can be considered only after the price breaks above the MF pivot and the level of resistance at 76,62.
Market Leader and would appreciate it if you could participate in a survey. Please, visit the Academy’s forum and answer the question given below:
What is your opinion on the possibility of a US default?
· It is averted once and for all
· It is only delayed
· It is impossible
· Your own opinion
