EUR/USD is edging higher as the markets are back in action after the Christmas break. The markets will be closely monitoring developments in Washington, as Congress reconvenes and talks continue over the fiscal cliff, with tax hikes and spending cuts set to kick in on January 1. In fundamental news, the S&P/CS Composite-20 HPI, an important housing inflation index, continued its recent upward swing, with an excellent 4.3% gain. However, the Richmond Manufacturing Index dropped to 5 points, well below the market forecast of 12 points. On Thursday, there are three key releases out of the US – Unemployment Claims,CB Consumer Confidence, and New Home Sales. There are no scheduled releases out of the Euro-zone until Friday.
- Asian session: Euro/dollar edged higher, consolidating at 1.3248. The pair continues to move higher in the European session.
- Current range: 1.3240 to 1.3290.
Further levels in both directions:
- Below: 1.3240, 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: 1.3290, 1.3350, 1.34, 1.3480 and 1.36.
- 1.3240 is providing weak support.
- 1.3290 is the next line on the upside.
Euro/dollar moving higher as markets eye fiscal cliff – click on the graph to enlarge.
For more events and lines, see the Euro to dollar forecast
- Crunch time in Washington: After all the rhetoric, mud-slinging and finger pointing between the Republicans and Democrats, there’s little to waste if an agreement is to be hammered out to avoid the fiscal cliff. If the sides can’t get their act together in the next few days, some 650 billion dollars in tax hikes and spending cuts will automatically kick in on January 1st ,which could push the fragile US economy into recession next year. Both houses of Congress will be back in session on Thursday, as talks continue. The markets are hoping that at the very least, some type of stop-gap measure can be reached, which would provide some breathing room while negotiations for a comprehensive deal continue.
- Will improving US data continue?: US data looked sharp throughout last week in a range of sectors, raising confidence that the US economic recovery is gaining strength as we head into 2013. Will the positive trend continue in the last trading week of the year? Thursday and Friday will see the release of key data in housing, unemployment and consumer confidence. Additional solid releases would be an excellent way to end the year, although developments on the fiscal cliff crisis could grab the spotlight over the next few days.
- Italy passes budget, Monti Resigns: Italy has never been associated with political stability, and the country is once again faces elections early in 2013 as Italian Prime Minister Mario Monti announced his resignation. 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 no doubt keep a close eye on developments in Rome, as the country continues to struggle with a weak economy and huge public debt.
- Eurozone economies sluggish: As we approach the end of 2012, the health of the economies of the major players in the Eurozone does not look promising. Unemployment is rampant in Greece and Spain, and Italy and France ..., there may not be a lot to cheer about in the early part of 2013. Germany, the economic locomotive of Europe, is in much 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.