Dear beggars, brace yourselves for the return of the ugly US DEBT CEILING! Yes, it’s true. Following the momentary suspension of the debt limit in October 2013, the debt ceiling is back in focus as we quickly approach the end of the suspension on 7 February 2014. Although most analysts expect the debt ceiling to be raised before the US Treasury manages to exhaust the limit, which Treasury Secretary Jack Lew says would be at the end of February, investors should consider that this issue is likely to weigh on the US dollar this month. For traders, this may well be an opportunity to enter speculative USD shorts with tight stops and an investment horizon of up to a month, given that February may see increased volatility in USD exchange rates.
For example, we just posted USDTRY short as a high-risk trade idea in light of this issue and the fact that the problems surrounding Turkey have began to cool down following the Turkish central bank’s interest rate increase. If you want to stay clear of EM exposure, there is always EURUSD long, but this should only be a short-term trade as we still expect the euro to depreciate versus the dollar in 2014.