Bitmarketperu.com
US sentiment continues to sour as the issue of raising the US debt ceiling resurfaces to avoid a default on debt obligations. Democrats are advocating for a debt ceiling increase without significant spending cuts, while Republicans insist on substantial cuts prior to any increase. What does this al mean?
Raising Debt Ceiling
Raising the debt ceiling essentially means relying on other nations to finance excessive spending. The US prints money to fulfill its debt obligations, which is then used to cover government expenses and purchase foreign goods. Countries like China and Peru, heavily involved in commodity and manufacturing sectors, receive these US dollars, which they subsequently use in both international and domestic markets since the US lacks substantial manufacturing capabilities attracting these exported dollar. In essence, a significant portion of the US dollar inflation is exported to these countries.
Not Raising Debt Ceiling
Once the US stops raising the debt ceiling, it will be compelled to reduce spending and pay off its debt through increased taxes. Something no politician wants to do on their watch. Moreover, this would lead to default as the US is financially strained. The situation the US currently faces is quite dire.
It is worth noting that the US is able to continue the former pattern primarily due to the status of the US dollar as the internationally recognized reserve currency backed by petroleum. Without this advantage, such actions would likely be unsustainable. The Democrats’ assertion that raising the debt ceiling equates to fulfilling their debt obligations can be seen as a mere deferral of addressing the underlying issues.
The US Dollar
If the debt ceiling continues to be raised, the US dollar will likely weaken over time, although it is important to remember that a significant portion of this inflation is also exported keeping the dollar afloat somewhat. On the other hand, if the debt ceiling is not raised, the US dollar may experience a sudden surge as debt is paid off, potentially leading to a shortage of dollars in international markets.
Elliott Wave Forecast
EURUSD has been on an uptrend since the 0.9535 Sept 2022 low. The run up to the 1.1033 Feb 2023 high is impulsive and the sideways action since has been corrective taking the form of an expanded flat. Notice that wave B of this flat retraced to a new high at the 1.1095 falling just short of the 1.1110 1.14% BvsA retracement. The pair confirmed the B wave high when if fell back down below the 1.1033 Feb 2023 high. This drop should be the final C wave of the expanding flat most likely forming. Downside target is below the 1.0515 A wave low at the 1.0435 38.2% Intermediate degree 2vs1. From there, the EUR should rally strong against the greenback taking it well above the 1.10 high and to the 1.20 and beyond.
