FX.co ★ What Are the Risks of a U.S. Government Shutdown?

Before analyzing all the aspects of a "government shutdown" and its impact on the economy, it's worth recalling that the last time the U.S. government suspended operations was six years ago. Previously, it occurred in 2013–2014. In both cases, the American economy lost between 0.4% and 0.6% of its GDP. So it's naive to think that this time there will be no or minimal losses. The U.S. economy is bound to take a hit.

The first issue to consider is the fate of federal employees. They are once again being sent on an unplanned vacation, as Donald Trump refuses to make compromises with Democrats. If the shutdown lasts one to two weeks, it won't be catastrophic. But what if it drags on longer? Recall that the longest shutdown in U.S. history happened during Trump's first term. And now, the once-again incumbent president seems even more aggressive than he was six years ago.

Based on this, one can assume the shutdown will continue until the Democrats concede. When that happens, I won't even begin to guess. But in the meantime, as both parties blame each other for stubbornness, government employees will remain without work. And if they're not working, they'll certainly be spending much less. This will lead to issues with loans, mortgages, and everyday consumer spending. Many economic indicators for October will likely be "distorted" simply because between 0.5 and 1 million people will have temporarily lost their jobs.

Aside from that, Trump has also not ruled out the possibility of mass layoffs among federal employees. Ironically, one of the "pleasant" parts of this situation is that "critical" agencies and roles will continue to operate—but without pay. So you might say you're lucky if you're a non-essential federal worker: at least you'll get some weeks or months off. The rest will keep working unpaid. Will this prompt some federal employees to resign voluntarily, given better income prospects as truck drivers or McDonald's workers compared to serving the U.S. government? During the 2018–2019 shutdown, more than 300,000 employees were furloughed. This time, the number could be even higher.

Wave Pattern for EUR/USD:

Based on my analysis of the EUR/USD pair, it continues to build an upward segment of the trend. The wave pattern still largely depends on the news background surrounding Trump's decisions and the domestic and foreign policies of the new U.S. administration. The targets for the current uptrend could extend as far as the 1.25 area. At present, a corrective wave 4 is taking shape, which may already be complete. The bullish wave structure remains valid. Therefore, I am still considering only long positions. By the end of the year, I expect the euro to rise to the 1.2245 mark, which corresponds to the 200.0% Fibonacci.

Wave Pattern for GBP/USD:

The wave structure for GBP/USD has undergone a change. We are still in an upward, impulsive segment of the trend, but its internal waves are currently difficult to read. If wave 4 unfolds as a complex three-wave pattern, the structure could normalize. Even so, Wave 4 will be significantly more complex and drawn out than Wave 2. In my opinion, the best benchmark right now is the 1.3341 level, which corresponds to the 127.2% Fibonacci. Two failed breakout attempts at this level could indicate the market is preparing for a fresh buying phase.

Key Principles of My Analysis:

• Wave structures should be simple and easy to interpret. Complex structures are hard to trade and often indicate a change in trend.
• If you're uncertain about what's happening in the market, it's better to stay out.
• There is no such thing as 100% certainty in market direction. Always use protective Stop Loss orders.
• Wave analysis can be effectively combined with other types of analysis and trading strategies.