A Rush of Market Action Before Thanksgiving
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A Rush of Market Action Before Thanksgiving

It has been a busy overnight ahead of the Thanksgiving day holiday in the U.S.  USD/JPY has propelled itself through the 82.00 level, while the EUR has tumbled once again as European Union Finance Ministers failed to agree on a debt reduction package for Greece.

Let’s start in Japan.  The LDP candidate Shinzo Abe made further comments as he answered comments made by Bank of Japan governor Shirakawa.  Abe stated he wanted the government to buy bonds from the market and wants to see inflation at the 2-3 percent level.  He is also looking to increase military spending as well as cut welfare payments by 10% and reduce corporate tax rates.  Abe, who is expected to win election on December 16, has also been advocating further easing by the BOJ.  After falling to a low of 81.70 overnight, the USD/JPY reversed its field and has risen as high as 82.25 overnight.  Technical analysts say the currency pair could test as high as 82.70.  Support at the moment is at the 81.95 and 81.70 levels, while resistance appears at 82.40 and 82.65.

The EUR fell below the 1.2800 level finally settling at 1.2735 after Eurozone finance ministers failed to agree on a debt-reduction package for Greece.  There was also no approval of the next tranche of bailouts, which has been on hold since June.  The meetings lasted almost 12 hours as a key issue remains the IMF’s reluctance to give Greece an extra two years to reach their deficit target.  The IMF wants this target reached by 2020, while the Finance Ministers are willing to wait until 2022.  The EUR has come back a bit as German Chancellor Merkel has made various comments as to how to come to a compromise, but the selling pressure remains.  Analysts are now looking at a longer term target of 1.2660, if there is no deal in the near future.  Suffice to say, an agreement would see the EUR move back towards the 1.2820 level.  As for that aid payment to Greece that has been on hold since June, the next meeting for the finance ministers is November 26, so it will be held at least until then.  The ebb and flow of the EUR is certain to be influenced by Euro finance minister comments as well as comments from European leaders.

The British Pound moved higher after the release of Bank of England minutes showed the MPC voted 9-0 to keep rates at 0.5% and 8-1 to keep the QE target at GBP 375 billion.  GBP rallied to 1.5930 before settling back into the “1.59 teens”.

Fed Chairman Ben Bernanke spoke at the New York Economic Club yesterday and said that “accumulating evidence does appear consistent with the financial crisis and the associated recession having reduced the potential growth rate of our economy somewhat during the past few years”. In other words, we are not growing as an economy as fast as he would have liked.  He also said the Fed lacks measures to alleviate the impacts of the fiscal cliff.  He warned that “Congress and the administration will need to protect the economy from the full brunt of the severe fiscal tightening at the beginning of next year” as the fiscal cliff would “pose a substantial threat to the recovery” and “a fiscal shock of that size would send the economy toppling back into recession”.   These comments were not taken kindly by the equity markets and his remarks made the DOW tumble.  As far the economic outlook was concerned, Chairman Bernanke remained cautious over employment and the housing market. He stated that “the unemployment rate is still well above both its level prior to the onset of the recession and the level that my colleagues and I think can be sustained once a full recovery has been achieved”.

Once again liquidity is expected to be a concern as traders look for an early release ahead of the Thanksgiving holiday.

Expect the ranges to remain intact today, with downward pressure on the EUR to remain.

Further reading:  Best hours to trade for those who hate surprises

Matthew Lifson

Matthew Lifson

Matthew Lifson is a Foreign Exchange Trader and a Market Analyst. with Cambridge Mercantile Group.