European open: Ugly dog contest between US and Europe

FXstreet.com (London) - Today’s markets will be dominated by competition between Europe and the US to see which dog has the least fleas. The US is facing a government shutdown if an 11th hour agreement cannot be reached to extend the debt ceiling. In Europe, former prime minister, Silvio Berlusconi has pulled the rug out from under the Italian government, by removing his party from the Italian parliament.

The US government could be set for its first government shutdown since Clinton at midnight tonight, with entrenched partisanship breaking down any attempts aat reaching a compromise.

House Republicans have pushed to tie any increase of the debt ceiling to cuts in federal spending, including a one year delay to the implementation of Barack Obama’s controversial Affordable Care Act. Democrats will not allow any delay to the flagship Act of Obama’s presidency, and want to protect spending.

The result of a failure to reach a compromise agreement will be the partial shutdown of the US government, beginning with 800,000 federal workers.

Part of the seeming lack of urgency and protracted belligerence in any discussions is the belief held on both sides that any shutdown can be pinned on the other side electorally. Democrats believe that they can pin the shutdown on Republican opportunism, whereas Republicans believe that they can pin a shutdown on Democrat profligacy.
Senate will convene today at 2pm ET and will almost certainly reject the House’s bill to delay Obamacare.

Silvio's Back

In Europe, Silvio Berlusconi has returned to the fray to show that he is still more than capable of bunga bunga-ing Italian markets. The deposed Italian PM has withdrawn his party’s support from the ruling coalition and withdrawn his ministers from the cabinet. Berlusconi made the move to try to pull the rug out from under the Italian coalition and force a general election. However Italian Prime Minister Enrico Letta has said that he will instead seek a new parliamentary majority rather than go to the polls.

The move sent Italian 10-year yields climbing 10 percent at the same time as Germany continues to try to form a working coalition government.

Italy has the third largest bond market in the world and with two of the Eurozone’s biggest economies facing political instability, things do not bode well for the Eurozone.

With both sides of the pair in difficulties, EUR/USD will have an ugly dog fight on its hands today – even if the US does reach an agreement for a temporary extension of the debt ceiling it will come after European trading is closed.

EUR/USD is currently trading is USD 1.3499.