EUR/USD Nov 19 – Edging Upwards on Fiscal Cliff Hopes

EUR/USD is edging higher, as the markets responded positively to an upbeat  meeting between President Obama and US Congressional leaders over the fiscal cliff crisis. Meanwhile, the fighting in the Middle East continues, as attempts are being made to broker a cease fire between Hamas and Israel. Today’s highlight is US Existing Home Sales.

EUR/USD Technical

• Asian session: Euro/dollar was uneventful, and consolidated around 1.2760. The pair has edged higher in the European session.
• Current range: 1.2750 to 1.28.

Further levels in both directions:    

• Below: 1.2750, 1.2690, 1.2624, 1.2590, 1.25, 1.2440, 1.2390, 1.2250, 1.2140 and 1.2042.
• Above: 1.28, 1.2880, 1.2960, 1.30, 1.3030, 1.3080, 1.3140, and 1.3170.
• 1.2750 is providing support. 1.2690 is stronger.
• 1.28 is the next line on the upside.

Euro/dollar  edges higher  on fiscal cliff hopes – click on the graph to enlarge.

EUR/USD Fundamentals

• 8:30  Deutsche Bundesbank President Jens Weidmann Speaks.
• 15:00 US Existing Home Sales. Exp. 4.76M.
• 15:00 US NAHB Housing Market Index. Exp. 41 points.

For more events and lines, see the Euro to dollar forecast

EUR/USD Sentiment

• Republicans and Democrats upbeat over fiscal cliff: With the US election behind us, many pundits expected the fiscal cliff crisis to get entangled in gridlock  on Capital Hill. In a refreshing surprise,  Congressional leaders and President Obama sounded upbeat after meeting on Friday.  The leaders are seeking to reassure nevous  taxpayers and investors that they will take fast and decisive action to avoid massive tax hikes  set to  occur in January. However,  Republicans and Democrats are far apart on how best to reduce the staggering debt, and reaching  a compromise promises to be a difficult task. The last thing the markets want to see is a nasty, protracted fight between Congress and the president.
• Middle East  violence continues: The fighting between Hamas and  Israel  has not  let up, with Hamas firing rockets into Israel as the latter pounds targets in Gaza.  Over  the weekend, rockets landed in Tel Aviv and near Jerusalem, raising fears that Israel could  widen the conflict and respond with an all-out land invasion of Gaza. The US, Europeans and Egypt are actively trying to broker a cease fire, but those efforts are  unlikely to  succeed for at least several more days.  A wider conflict could  easily  spill over  and lead  to massive unrest in the volatile Middle East. Oil prices have risen, and the currency markets could continue to react  if the crisis worsens.  
• Weak  US data surprises markets: We have heard a lot about the US economic recovery, but it certainly wasn’t apparent in some key  releases last week. The Philly Fed Manufacturing Index tumbled to -10.7 points, shocking the markets, which had predicted a small gain. Unemployment Claims shot up to 475 thousand, well above the estimate of 372K. The Empire State Manufacturing Index was slightly higher than the forecast, but remained in contraction territory for the fourth straight month. If the weak US numbers continue, we could see EUR/USD react with some volatility.
• IMF, EuroGroup  in public spat  over Greece crisis: The IMF and EuroGroup are butting heads over what action to take  concerning Greece’s long-term debt. At a meeting last week, the Euro-zone finance ministers agreed to give Greece a two-year extension, until 2016, to reduce its deficit to 2% of GDP. The EuroGroup also decided to postpone a decision on the next tranche of aid until November 20. The IMF, for its part, wants another round of debt restructuring of Greece, so that the country can realistically meet the goal of 120% debt to GDP ratio by 2020. The bottom line is that the IMF want the euro-zone countries to take on the losses of Greek loans. This, of course, is unpalatable to Germany and other EZ members, and the IMF could respond by exiting the troika. Greece managed to avoid an immediate default after issuing short-term bonds. But the question of of the next tranche of aid for Greence  continues to  hang heavy in the cold European air. With the EuroGroup meeting on Tuesday to discuss the Greek crisis,  the markets will be closely monitoring developments.
• Greek turmoil could lead to Grexit: With Greece facing tremendous political and economic problems, the country’s membership in the Euro-zone is in jeopardy. Recent EU Summits and Euro-group meetings have not led to any breakthroughs, and an agreement on additional funds for Greece remains elusive. Both Greece and Germany may have reached their limits, and there are several other reasons why we could see a Grexit.  With German economy in trouble many politicians and senior officials want to concentrate on domestic problems and are not at all happy about  providing more funds for Greece. By taking a tough line on Greece, is Germany playing with fire? Time is becoming more and more critical, and further uncertainty will likely keep up pressure on the  vulnerable euro.