A word of caution!  Be careful standing near the “fiscal cliffâ€.  If you get too close you may fall!  Yesterday afternoon, the markets, both equity and FX, reacted to positive comments by both President Obama and Congressman Boehner.  The President said he was hopeful that there would be a fiscal cliff deal in place before Christmas.  Then Congressman Boehner expressed his feelings, saying he was optimistic that “we will be able to avert this crisis sooner rather than laterâ€.
The markets at the moment are so “fragileâ€, that these type of comments, without any substance, can cause swings in the market that could be volatile. Today may be no different as Treasury Secretary Geithner is scheduled to meet with Congressman Boehner and other congressional leaders today.  Traders will anxiously await comments following this meeting.
As far as the currencies are concerned, one day’s resistance is another day’s support. Yesterday, the EUR was unable to break above 1.2940 for a long time.  Then, the markets staged a “risk on†rally after Boehner’s comments and now today, 1.2940 has been support for the EUR during the Asian trading session and into early morning European trading. Adding to the “good EUR feelingâ€, German unemployment in November, rose by 5,000, much better than the consensus estimate of 15,000.  October’s number was also revised lower from 20,000 to 19,000.  This helped the EUR move to its high this morning of around 1.2980, where it is currently (4:30 am) trading.  Technically we have developed at 1.3020 – 1.2880 trading range as these are the high and low levels over the last few trading sessions. A break to the topside seems favored by traders in anticipation of a fiscal cliff solution. It was also rumored that Asian central banks, including China and Korea had been buying USD against their home currencies the last few days, and when they do that they usually enter the FX markets and purchase EUR.  The rumor has them buying EUR in early European trade helping the currency move higher.
Yesterday’s release of the FED’s Beige Book showed that “economic activity expanded at a measured pace in recent weeksâ€.  It also stated that Hurricane Sandy, as well as continuing concerns over the fiscal cliff were factors that constrained growth during the surveyed period.  Seven districts reported that manufacturing slowed or contracted.  It was also reported that business owners stated fiscal cliff concerns delayed business decisions.  The housing market did show some improvement.
Swiss National Bank President, Thomas Jordan said his currency remains “highly valuedâ€, which can tend to burden many Swiss companies, in terms of economic growth.  He also reiterated that the SNB will defend the EUR/CHF 1.2000 floor, “with determination†and that the SNB is prepared to buy foreign currency in unlimited qualities.
USD/JPY is higher this morning, breaking above 82.00 as traders exit the “safe haven†currencies and add risk.  The Australian and Canadian Dollars improved as well.
Expect the “risk currencies†to move higher over the day.  There is talk of good selling orders in the EUR at the 1.3000-1.3010 level.  A break there is would see a move towards 1.3040.
Listen for comments by congressional leaders regarding the fiscal cliff negotiations today, as they will dictate the direction of the currency and equity markets.
Further reading:Â Gold falls off a cliff
