While markets were closed over the weekend, politicians kept on talking in Washington, and it seems that negotiations regarding the fiscal cliff are stuck in the mud.
This uncertainty has an impact on the entire world, and could trigger a “risk off” behavior, strengthening the US dollar and the Japanese yen, against all the other currencies, including the euro.
The main sticking point is taxes. Democrats wish to see some tax hikes as part of a long term solution, while Republicans would only like to fix loopholes in the tax code. For more details about these issues, see All you need to know about the fiscal cliff.
During the weekend, also Treasury Secretary joined the discussion by criticizing Republicans for the stalemate and saying that they will “own” the blame by refusing to allow hikes for the America’s richest: 2% of them. Republican leader John Boehner clearly stated “we’re going nowhere”, blaming the White House for wasting time.
In any case, the optimism that accompanied the early stages of the negotiations faded away. As the US economy’s strength impacts everybody, the potential reaction is risk aversion – buying safe haven currencies such as the dollar and the yen while selling euros, pounds, Aussie dollars, etc, and stocks.
Even without the cliff, this is a very busy week. Here are the major market movers, and here is an detailed outlook for EUR/USD, including an updated technical analysis.
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