The USD continues to remain plagued by the looming “fiscal cliff” and is expected to weaken against the majority of its top counterparts if US decision makers manage to secure a deal to avoid the impending “fiscal cliff”.
The main attention remains on Washington, DC as financial markets return from the Christmas holiday. The US decision makers have only five more days for delivering a deal for avoiding the supposed “fiscal cliff”, which consists of a set of tax hikes and cuts in government spending due to be implemented in the New Year. The US Congressional Budget Office (CBO) has projected the dose of austerity measures will tip the US back into recession.
There is a large scale of anticipation that a last minute compromise for avoiding the immediate shocks of the fiscal cliff may take place.
As for the forex market, a fiscal cliff deal is expected to largely weigh on the USD in the midst of ebbing safe haven requirement for the benchmark currency. The only exception can be found in the greenback’s pairing with the yen, where the focal point remains on domestic policy.
The markets in Europe opened again after the holidays, though the hectic trading was missing which was quite normal for the Christmas to New Year week. Nevertheless, in spite of the lack of chatter, equities are trading higher in European markets and the euro was up against the USD in currency markets.
The euro is up again for the second consecutive day and is 100 points higher than the post-Christmas open. EUR/USD is at present trading a little below 1.3300, and an eight month high was set in the previous week at 1.3308; that high could go on to give resistance. Support could be provided by a broken support level at 1.3158.
The main factor that might have a huge effect on the Forex trading in the days before the New Year is the looming US “Fiscal cliff”. In addition, the yen has been ruthlessly sold off subsequent to the recent elections and taking of charge by the new Prime Minister in Japan which could see more volatility in either direction.
The yen was under lots of pressure on Thursday, falling to its two-year low against the USD, after the appointment of Mr. Taro Aso as the new finance minister of Japan signaled a rise in borrowing.
The USD went up by 0.3 per cent to 85.74 after having hit a two year high of 85.87 during the Asian trade. On the other hand the euro gained 0.6 per cent to a 16-month high of 113.79.
The yen is declining due to the strong talks from the new administration, hitting levels that were last seen after the bout of Bank of Japan intervention in late 2010.
During the US trading on Thursday, crude oil futures went up to its 10 week high, soon after statistics confirmed on the fall in number of people who had filed for unemployment assistance in the US was more than expected.
Crude prices went on to draw support from the hopes that the US policymakers will reach a budget agreement to avoid the intimidating “fiscal cliff” before the dead line that ends this year.
The light sweet crude futures for delivery in February traded at $91.27 a barrel on the New York Mercantile Exchange, up by 0.3% on the day. The traded crude prices in New York rose to $91.34 a barrel earlier in the session, the uppermost level since October 19.