Volatility Part of the Equation as Uncertainties Mount

The failure of U.S. lawmakers to reach an agreement to raise the debt ceiling, cut spending and reduce the country’s deficit, less than a week before August 2 deadline, continued to weigh down on the USD, since a possible downgrade of the U.S. credit rating could have catastrophic effects on the global financial markets.

Traders now are anxiously waiting for the U.S. lawmakers to reach a deal and for the economy to release tomorrow’s advanced GDP reading for Q2, to determine if the largest economy in the world is about to witness a double dip recession or not, and whether the global economic recovery is about to continue or not.

All these developments are keeping the USD weak, trading as of this writing around the 74.00 level, and opening the way for some currencies with much more stable economies to continue trade at record highs including the NZD, the AUD and the CHF.

Gold fell from its highs, yet remains close to its record values, as uncertainties keep sentiment fragile. As of this writing gold trades around the $1617.90 level. Oil is trading with an upside bias around the $97.70 per barrel level, since the dollar weakness has been giving crude some upside momentum.

Asian and European stocks sank today on fears from a possible default by theU.S.economy, and until lawmakers will resolve this problem, investors might continue to pull their money out of the equity markets and invest in the safe haven gold, yen or CHF.

Although the USD weakened, the Euro was little changed today, since the single currency remains under pressure amid renewed contagion fears and a lackluster unemployment change report from Germany. Europe’s confidence survey for today also presented a weaker than expected outcome.

Today the U.S. will release its pending home sales alongside the weekly jobless claims. However the focus will remain on Washington and on tomorrow’s GDP report, since lackluster growth is seen from both sides of the Atlantic, which will keep volatility as part of the equation this week.