EUR/USD with daily gains as US fiscal deadlock continued

The euro gained ground against the US dollar on Monday, as negotiations over the US debt limit between US President Barack Obama and House Republicans hit an impasse over the weekend.

EUR/USD reached a session high at 1.3568 at 6:00 GMT, after which consolidation followed at 1.3566, rising 0.19% for the day. Support was likely to be received at October 11th low, 1.3517, while resistance was to be encountered at October 4th high, 1.3631.

It became clear that negotiations between Barack Obama and House Speaker John Boehner broke down over the weekend. Bloomberg reported, that President Obama, in a phone call with House Minority Leader Nancy Pelosi of California, “reinforced that there must be a clean debt limit increase” and a stopgap spending measure also free of policy conditions, before budget negotiations were to begin. Senate Majority Leader Harry Reid, who initiated debates on October 12th with Minority Leader Mitch McConnell, said on Sunday that discussions were “substantive” and he was “optimistic.”

Democratic policymakers warned during the weekend, that a lack of movement towards an agreement on the budget matter could have an effect on financial markets.

On the other hand, European Central Bank President Mario Draghi said that it was “unthinkable that an agreement won’t be found”.

“Given the fiscal shenanigans, we could go through several months of dull data, especially if we get just a short-term fix,” said Greg Gibbs, a Singapore-based senior currency strategist at Royal Bank of Scotland Group Plc., cited by Bloomberg. “The euro could maybe get up toward $1.40 on the basis that the market will be looking for an alternative to the dollar and a recovery is occurring modestly in Europe.”

Today trade was likely to remain thin, because markets in the United States will remain closed due to the Columbus day holiday. At the same time, the euro zone was expected to release data on industrial production later in the day. Analysts projected that the gauge of output will advance 0.6% in August, after it fell 1.5% in July. A stronger gain than projected would certainly raise the appeal of the euro.

Meanwhile, the common currency was steady against the pound, as EUR/GBP cross dipped 0.04% to trade at 0.8490 at 7:47 GMT. EUR/JPY pair was falling 0.16% on a daily basis to trade at 133.34 at 7:47 GMT. The US dollar has declined 1.2% over the past month, according to Bloomberg Correlation-Weighted Indexes, while the euro has appreciated 1.1%.