Shutdown Shrugged Off

Currencies were generally unchanged and risk sentiment was upbeat despite no positive improvements in the US government shutdown. On the day, AUD was the top performer while NZD lagged. Australian trade balance is up later. 

There were no hints or rumors about a breakthrough in Congressional budget negotiations. At this point, Democrats may be happy to let the shutdown continue. In the last shutdown, the public blamed Republicans and they likely believe the same will happen this time around. If it continues through Friday non-farm payrolls will be postponed and that makes Wednesday's ADP report more important than usual.

Heading into the shutdown, US manufacturing had some momentum. The ISM manufacturing data followed up on some positive regional readings by climbing to 56.2 compared to 55.0 expected.

In Europe, the Italian stock market rose more than 3% on signs that members of Berlusconi's party will defy him and continue to support the Letta-led government. Throughout the short crisis the FX market has demonstrated that it's not overly concerned with what happens in Italy. That's instructive and will likely continue as long as Italian yields stay below 5% (last at 4.42%).

Prices action was middling on the day but there were some interesting developments at the margins. Cable touched a fresh cycle high at 1.6259 but faded back below 1.6200. That kind of spike reversal can signal a top but more evidence is needed.

EUR/CHF was higher on the day and bottomed above yesterday's low. That could be an early sign of a bottom.

Up later, the Australian dollar will try to continue its upward momentum with trade balance numbers on the docket. At 0130 GMT the deficit is expected at A$400m compared to A$700m in the previous month.