EUR/USD Dec 31 – Fiscal Cliff Hopes Fading

EUR/USD has edged lower, and dropped below the 1.32 line as US lawmakers have failed to reach an agreement on the fiscal cliff. Although talks between the Republicans and Democrats continue, the prospects of a last-minute breakthrough do not look good. The final US release of 2012 looked sharp, as Pending Home Sales jumped 1.7%, well above the forecast of a 0.3% decline. With the markets closed on Tuesday for the New Year’s holiday, trading volumes remain thin. This has reduced  liquidity and could result in increased volatility as we wind up 2012. There are no scheduled releases from the Euro-zone or the US on Monday.

EUR/USD Technical

• Asian session: Euro/dollar edged lower, consolidating around the 1.32 line. The pair continues to edge lower in the European session.
• Current range: 1.3180 to 1.3240.

Further levels in both directions:  

<img title=”EUR USD Daily Forecast December 19″ src=”https://forexcrunch-wpengine.netdna-ssl.com/wp-content/uploads/2012/12/EUR-USD-Daily-Forecast-December-19-400×225.png” alt=”” width=”400″ height=”225″ />
<img title=”EUR USD Daily Forecast December 18″ src=”https://forexcrunch-wpengine.netdna-ssl.com/wp-content/uploads/2012/12/EUR-USD-Daily-Forecast-December-18-400×225.png” alt=”” width=”400″ height=”225″ />
<img title=”EUR USD Daily Forecast December 17″ src=”https://forexcrunch-wpengine.netdna-ssl.com/wp-content/uploads/2012/12/EUR-USD-Daily-Forecast-December-17-400×225.png” alt=”” width=”400″ height=”225″ />
<img title=”EUR USD Daily Forecast December 14″ src=”https://forexcrunch-wpengine.netdna-ssl.com/wp-content/uploads/2012/12/EUR-USD-Daily-Forecast-December-141-400×225.png” alt=”” width=”400″ height=”225″ />
<img title=”EUR USD Daily Forecast December 13″ src=”https://forexcrunch-wpengine.netdna-ssl.com/wp-content/uploads/2012/12/EUR-USD-Daily-Forecast-December-13-400×225.png” alt=”” width=”400″ height=”225″ />
<img title=”EUR_USD Technical Dec. 12″ src=”https://forexcrunch-wpengine.netdna-ssl.com/wp-content/uploads/2012/12/EUR_USD-Technical-Dec.-12-400×225.png” alt=”” width=”400″ height=”225″ />

• Below: 1.3180, 1.3130, 1.3110, 1.30, 1.2960, 1.2880, 1.28, 1.2750, 1.2690, 1.2624, 1.2590, 1.25 and 1.2440.
• Above: 1.3240, 1.3290, 1.3350, 1.34, 1.3480 and 1.36.
• The pair is testing 1.3180 on the downside.
• 1.3240 has strengthened in resistance as EUR/USD loses ground.

Euro/dollar lower as fiscal cliff worries increase – click on the graph to enlarge.

For more events and lines, see the EUR/USD

EUR/USD Sentiment

• Last-Ditch Efforts on Fiscal Cliff Continue: Both the Senate and House of Representatives convened on Sunday, but there was no apparent progress in the fiscal cliff talks between the Republicans and the Democrats. Unless a dramatic breakthrough is announced on Monday, the US will go over the fiscal cliff, meaning that 600 billion dollars in tax hikes and spending cuts will come into effect on January 1st. This double-jab could rock the fragile US economy and stifle the nascent economic recovery. Lawmakers on both sides have asked US vice-president Joe Biden to lend a hand and try to break the impasse. Senate Majority Leader Harry Reid said he is “hopeful but realistic”, but it’s doubtful if the markets are sharing his sentiment, with only hours left to reach an agreement to avert fiscal cliff.
• US ends year with mixed data: Recent US data typified what we saw throughout 2012 – a mixed bag of strong and weak releases, making it difficult to put a finger on the direction of the US economy. Unemployment Claims looked sharp, but Consumer Confidence fell to five-month low. New Home Sales failed to meet the  estimate, but Pending Home Sales surprised the markets with a strong gain. Although there are signs that the US economy is improving, this zig-zagging makes it difficult to predict what to expect in early 2013.
• Italy faces elections: Italians will go to the polls in February 2013, as Italian Prime Minister Mario Monti announced his resignation. Italians will go to the polls early next year, and with the third largest economy in the Eurozone in trouble, the political instability could hurt the high-flying euro. Monti has headed the government for just 13 months, but is widely credited for helping to keep the Italian economy above water during the difficult debt crisis. Monti waited for the 2013 government budget to pass before handing in his resignation. Political and financial leaders in Europe would like him to run in the upcoming elections, but in Italy the two main parties and a majority of Italians, unhappy with his austerity measures, have called upon Monti not to run. The markets will be busy monitoring developments in Italy, as the country continues to struggle with a weak economy and huge public debt.
• Eurozone struggling as year winds down: 2012 was a tough year for the Eurozone,  with the debt crisis and a near Grexit sending economic shock waves throughout the continent. As we move into 2013, the health of the economies of the major players in the Eurozone does not look promising. Greece and Spain are struggling, even with bailout funds, and Italy and France are facing tough times as well. With these major economies facing small or even negative growth, there may not be a lot to cheer about in the early part of 2013. Germany, the economic locomotive of Europe, is in better shape, but is suffering from slower growth and higher unemployment. On the brighter side, there has been significant progress in the Greek debt crisis, as aid is again flowing to Athens. As well, a framework has been agreed upon concerning a greater supervisory role for the ECB, with the goal of minimizing the impact of future banking crises in the Eurozone. As for the euro, it continues to trade at high levels against the dollar, despite all the economic troubles on the continent.

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