Boehner Breaks Off US Debt Ceiling Negotiations

Traders were hit with a shock after the close of markets on Friday as House Speaker Boehner said he will no longer pursue a major deficit reduction deal. Trading was slow during market hours on Friday and overall moves were considerably smaller than what we saw earlier in the week. AUD and USD were the top performers; CAD and CHF lagged. Fridays CFTC data showed an expansion of net USD shorts. EURO IS LIKELY TO CHART THE PATH of our DOUBLE TRADES in the Premium Section, especially after closing above its 55 & 100 DMAs as well as closing above the 200 WMA for the 17th consecutive week.

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Markets sensed progress with debt ceiling negotiations as the Aug. 2 deadline nears but Boehner broke off discussions with the White House on Friday. He said a deal was never really close.

The vast type of plan that will address long-term debt and deficits now appears to be impossible and leaders will now focus on a short-term rise in the ceiling. Obama said he will insist on extending the debt ceiling until 2013, after the next election.

Earlier this week, ratings agencies warned about failing to reach a long-term deal and said they may cut the USs credit rating if no long-term plan was put in place.

Economic data focused on Canada where inflation slower far more than expected. The CPI fell to 3.1% y/y from 3.7% (exp: 3.5). The story was similar excluding food and energy as it hit 1.3% from 1.8% (exp: 2.0%). The later report on Canadian retail sales dulled some of the losses as they increased 0.1% compared to the -0.3% expected. Core sales were also better than expected.

The S&P 500 edged up a point to close the week at 1345. Its the highest weekly close since late April and forms a bullish outside reversal candlestick pattern. WTI crude closed the week slightly below $100 and gold gained $14 to close at $1601. On the week, CHF and USD were the worst performers (by far) while EUR and NZD were on top.

CFTC data showed USD shorts increasing against all but EUR and MXN. The only currency in a net negative position vs USD remains GBP but the net short fell to -7K from -25K as shorts were covered in the past week. The net euro long position fell to 9K from 12K. Yen longs expanded to 42K from 28K. New longs in commodity currencies were common, especially CAD and AUD.