Euro crisis returns to forefront as Obama’s victory fades
Forex News Today: Daily Trading News

Euro crisis returns to forefront as Obama’s victory fades

President Barack Obama has won re-election for a second term defeating Governor Mitt Romney.  The Associated Press has projected that with all votes counted, the President will amass 303 electoral votes, where 270 is needed for victory.  As the markets were becoming aware of the Obama victory, the dollar weakened as it is expected that with the re-election the U.S. will maintain monetary stimulus policies that tend to weaken the dollar.

The EUR, AUD and CAD strengthened as the demand for higher-yielding assets grew.  Asian and European stocks have moved higher as well.  Some believe with monetary policy remaining lose, the dollar will be sold.  But there are others who remind us that this sell off may not last too long as the U.S. faces the fiscal cliff at the end of 2012.  The fiscal cliff refers to the more than $600 billion in tax increases and spending cuts that will be implemented in 2013 unless the Congress acts.

The EUR ran to a high of 1.2876, while the USD/CAD fell to .9868 and the AUD got as high as 1.0479.  Had Governor Romney won, the markets would have been more USD positive as the candidate disagreed with FED policies and had made it clear that he would be replacing the present chairman of the Federal Reserve, Ben Bernanke.

All is not rosy for the EUR.  Concern remains as Greece moves towards their vote on austerity. This vote will determine if the Greek bailouts continue.  The debates begin in Athens Parliament today.  Some of the austerity plans include raising the retirement age as well as eliminating Christmas and holiday payments for pensioners.  This legislation needs to be approved by November 12 in order for Greece to continue to receive aid. The knee-jerk reaction to the President’s victory will not be enough to countermand the problems that remain in the Eurozone.  As the Obama victory fades in the rear-view mirror, the Euro crisis will once again return to the forefront and the EUR will be pressured.

As commodity prices and equities rose, the Canadian Dollar took advantage and strengthened overnight to levels not seen in a while.  USD/CAD has already broken support at .9900, and has tested the next support at .9870, before bouncing a bit and is presently trading just below the .9900 level.  The expected target level for the USD/CAD is .9845 initially, with a chance to test the .9800 level depending on how strong the commodity rally goes.  It does look however that the USD/CAD will continue to remain below the parity level.

As stated earlier, the Asian and European equity markets are higher this morning.  DOW Futures are hovering around flat, indicating a quiet opening for the US equity market, but I don’t believe that.  Given the election victory for the President I would be surprised if the US equity markets did not immediately rise on the opening.

As far as the currencies are concerned, while I expect the Canadian dollar to remain firm, I don’t expect the EUR to do so.  The US election is over.  Reality sets back in.  Europe is still a mess.  The EUR will once again begin its trip lower.  Some EUR selling could be tempered today based on the fact that the ECB meets tomorrow and traders lately have been cautious given the comments of ECB President Draghi.

Lastly, there is a possibility that liquidity could dry up early today as the New York metropolitan area braces for a Noreaster storm.  Normally, this wouldn’t effect the markets, but the New York CIty area is still recovering from Hurricane Sandy and many are concerned this storm could create more flooding and further power outages.  Traders may find themselves taking an early leave ahead of the storm.

Matthew Lifson

Matthew Lifson

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