Guest Article:Why the Markets Remain Hostage to the U.S. Government Shut-down?

As the government
shut-down enters its third week, its impact is already creating widespread
uncertainty and concern among U.S. citizens. Economists are predicting that the
influence of the shut-down is set to become even stronger in the coming weeks,
however, as government funding continues to dwindle indefinitely.

So while the
federal courts are currently still functioning and benefits payments are still
being made, it is estimated that the existing resources will only allow this to
continue for another 2 to 3 weeks. After this time, the U.S. will face defaulting
on its budget deficit and entering a prolonged period of austerity.

The
Government Shut-down and the Forex Market: The Ultimate Stalemate

As the
Washington stalemate continues, the financial markets are also beginning to
feel the effect. This is only to be expected, especially in volatile markets
that remain susceptible to social, political and economic trends. Take the
forex market, for example, which has already seen diminished trading volumes
and a distinctly risk averse approach to investment since the shut-down began
just 13 days ago. The latest development in the crisis only served to heighten
the sense of dread and anxiety, as President Obama reportedly refused to deal
directly with the Republicans in an attempt to resolve the stalemate at the end
of next week.

While some may
remember how the threat of the fiscal cliff failed to undermine the financial
markets, it is important to note that the current circumstances are entirely
different. To begin with, the majority of the nations’ economists felt that it
was extremely unlikely that the U.S. would be allowed to plunge into the
oblivion, while those on Wall Street were already battle hardened in the wake
of the Great Recession. We are already in the midst of a government shut-down
in this instance, however, while the nation had recently experienced
significant levels of growth and regeneration.

The Early
Indicators and the Bottom Line for Forex Traders

So with the
financial markets in the grip of an impending fiscal crisis and a resolution seemingly
further away than ever, are there any immediate signs of danger on the foreign
exchange? Well the U.S. Dollar (USD) has followed up weeks of constant price
fluctuation by dropping sharply against the Japanese Yen (JPY) and New Zealand
Dollar (NZD). The initial uncertainty surrounding the government shut-down also
appeared to take its toll on trading volumes, with the forex market decidedly
quiet as investors sought further news concerning negotiations between the
White House and Democratic party members.

While austerity,
uncertainty and speculation are common features of the contemporary forex
market, traders are currently facing a unique set of fiscal circumstances.
Gripped by the first government shut-down in more than 17 years and hindered by
an increasingly fragile global economy, it is little wonder that they are
looking to adopt a risk averse approach and consolidate their position until a
resolution is released. With many following the latest news and breaking trends
through online brokerage firms such as Alpari,
the sense of anticipation on the market is set to reach a peak in the week
ahead.

Adrew Scarre