Hi, I was wondering if there were some veterans who could remember what happened to the dollar during the last US government shutdown? I’m curious if the marketplace sees a government shutdown as a bad thing or a good thing?
If you have a trading platform, you can use the charts it contains to answer your own question. If you don’t have a trading platform, there are free forex charts available from various sources on the internet. But, I’ll do it for you.
This time.
The EUR/USD is a convenient pair to look at, because it is NEGATIVELY correlated to the U.S. Dollar Index (to a high degree). So, if there were a sharp rise in the dollar, it would show up as a sharp drop in the EUR/USD. And, if there were a sharp drop in the dollar, it would show up as a sharp rise in the EUR/USD.
Here is a DAILY chart of the EUR/USD covering an 18-month period, back in the Clinton/Gingrich era, when the last big federal government shutdown occurred. Actually, there were two shutdowns over a period of about 53 days.
Can you spot them?
I’ll point them out in the next post.
It’s virtually impossible to identify the federal government shutdowns on this chart, unless you know the exact dates. The market did not reflect the drama being played out in the U.S. press at that time.
Here’s a bit of trivia: The first ellipse on the chart above marks not only the first government shutdown — but also Clinton’s first two wing-dings with Monica Lewinsky.
The second ellipse marks the second government shutdown — and Clinton’s third and fourth wing-dings with Monica (according to her sworn testimony).
But, the market didn’t hear about any of that until the scandal broke in January 1998.
Well thank you for the explanation. My EUR/USD chart only goes back to 1997 so I wasn’t able to look it up. And it’s quite interesting, the dates of the shutdown were November 14 through November 19, 1995 and from December 16, 1995 to January 6, 1996… and like you said, the shutdown didn’t have a dramatic effect.
I wonder what would happen if it occurs sometime soon while the economy is recovering in the US AND Europe?