Failure of Budget talks has little impact on Dollars’ gain
The USD which has always been the safe haven for traders saw bullish movement in opposition to its higher yielding currency counterparts last Friday which followed the failure of budget talks between the policy makers of the country. The setback in the budget negotiations has generated further fears that the US has gone closer to the “fiscal cliff” of spending cuts and automatic tax increases. This had led to major risk aversion before markets closed for the weekend. Consequently, safe currencies, such as the USD and yen, turned bullish. The market is lower due to the ensuing holidays.
But most traders are expectant of a good outcome of the US budget talks, as well as other significant US news. Last Thursday’s CB Consumer Confidence and New Home Sales, and Friday’s Pending Home Sales figures, are likely to create market volatility, and the USD is expected to go up.
Euro narrows the gap regardless of the looming Fiscal Cliff
In view of the possibility of the US falling off the so called ‘fiscal cliff’ which is mounting with each passing day, the risk correlated currencies were trading much higher in Monday’s trading. The EUR/USD opened the day 15 points lower than last Friday’s close, but it somehow managed to climb 40 points during the course of Monday’s session.
US policy makers will again meet on Thursday and try to come up with a plan to ward off the ‘fiscal cliff’ prior to the start of the New Year. However, in spite of the augmented negativity for a deal, there is little or no possibility of risk aversion in Monday’s markets, as European equities started trading with mixed results and most risk correlated currencies are thrashing the JPY and the USD. Except for the UK Hometrack Housing Survey which was lower by 0.1%, there was no prominent economic release in Monday’s session.
Presently the euro is trading above 1.3200 in opposition to the USD, though there are expectations of resistance by an eight month high near 1.3308. Support might be provided by an earlier resistance near 1.3158.
Japanese Yen declines again
The yen declined on Monday as it traded a near twenty month low against the USD after the newly elected Prime Minister started to pressurize the Bank of Japan to take up higher inflation targets. The USD went up by 0.2% and many any traders believe that the USD needs to prevail over 85.05 yen, which is its 200 week moving average for it to uphold more gains.
Crude oil trades lower
The price of crude oil has remained low due to the failure of a solution to the US ‘fiscal cliff’ which is threatening to take the sheen off commodity bull trading. Traders have become nervous on the current situation and hence there is large scale selling of crude. However, there are expectations that as soon as the fiscal cliff issue is resolved, crude oil prices will increase significantly.
WTI crude oil on the NYMEX was seen trading at $88.54 a barrel on Monday which is a loss of 0.14% or $0.12.