“Fiscal Cliff” News Set to Drive Markets Today
Despite low liquidity in the marketplace due to the Christmas holiday and a lack of economic indicators, the US dollar started off the week on a bullish note. Fears regarding the prospect of the US going over the “fiscal cliff” of spending cuts and tax increases at the beginning of the year were the main reason behind the safe-haven greenback’s upward momentum. Today, another slow news day means that traders will want to once again pay attention to any developments in the ongoing budget negotiations between President Obama and Congressional leaders.
Economic News
USD – US Budget Crisis may Impact Dollar Today
The safe-haven US dollar saw additional gains to start off the week, as concerns that the US could sink back into another recession if ongoing budget negotiations are not resolved led to risk aversion in the marketplace. The USD/CHF gained close to 40 pips during European trading on Monday, eventually reaching as high as 0.9163. The pair was last trading at 0.9153 when markets closed for Christmas. Against the JPY, the dollar gained more than 50 pips on Monday to reach a new 20-month high at 84.85.
Turning to today, another slow news day is expected, as most international markets remain closed. Still, the markets could see volatility as US lawmakers rush to reach a budget deal before a batch of automatic tax increases and spending cuts, known as the “fiscal cliff”, go into effect and threaten another recession. Any positive developments in the negotiations today will likely lead to risk taking among investors, which would likely lead to the dollar erasing some of its recent gains.
EUR – Progress in US Budget Talks Could Drive Euro Higher
The euro saw a mixed trading session to start off the week on Monday, as the ongoing deadlock in budget negotiations between US lawmakers led to risk aversion in the marketplace. The EUR/USD fell some 45 pips during afternoon trading to reach as low as 1.3173. By the time markets closed for Christmas, the pair was trading at 1.3189. The common currency had better luck against the Japanese yen, as speculations that the Bank of Japan will soon ease monetary policy further weighed down on the JPY. The EUR/JPY gained 75 pips during European trading, eventually reaching as high as 111.99.
Today, with several European markets still closed for the Christmas holiday, the euro is not forecasted to see significant volatility unless there is any news or announcements regarding the US “fiscal cliff” negotiations. Signs that the budget crisis is closer to being resolved are likely to lead to risk taking in the marketplace, which could boost the euro. At the same time, a lack of developments today may lead to additional risk aversion, which would send the euro lower against the USD.
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