The deal on averting the fiscal cliff was approved by the US House of Representatives. It wasn’t that easy: contrary to the Senate vote, many Republicans opposed the bill.
The approval, which wasn’t priced in, sent the dollar and the yen down, in a classic “risk on†rally.
It’s important to remember that the next political clash is just two months away. But at least for now, Obama will sign the bill into law and the US has averted the cliff before major markets open.
EUR USD Leaps on Cliff Resolution – Click image to enlarge
EUR/USD has leaped 100 pips to 1.3270. The pair already climbed above the 1.3290 line in the immediate response, but could not hold on to the gains. 1.3240 is minor support. For more on the euro, see the EURUSD forecast.
USD/JPY is trading above the 87 handle. AUD/USD and NZD/USD are at higher levels and USD/CAD has averted parity. The biggest breakout belongs to GBP/USD which crossed the critical 1.63 line. More on cable’s breakout here.
It’s important to note that liquidity is very low due to the New Year holiday and the fact that Japanese markets are closed.
The House voted 257:167 in favor of the bill. This is very different than 89 out of 100 member that supported it in the Senate. Moderate Republicans led by John Boehner managed to bring the bill to a vote without amendments, contrary to what many party hardliners wished for.
The Republicans originally wanted no tax hikes whatsoever. There is a clear difference between Republicans in the Senate and in the House.
Further reading: Trading the Fiscal Cliff: Different Currencies for Different Scenarios
