EUR/USD is edging higher as the markets wind down for Christmas. However, despite the holiday cheer, there are serious issues weighing on market sentiment, notably the continuing fiscal cliff crisis and the resignation of Italian Prime Minister Mario Monti. The final trading week of the year is usually characterized by thin trading, and there are no scheduled releases out of the Europe or the US until Wednesday.
- Asian session: Euro/dollar was steady, and consolidated around 1.3190. The pair has crossed above 1.32 in the European session.
- Current range: 1.3180 to 1.3240.
- Below: 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: 1.3240, 1.3290, 1.3350, 1.34, 1.3480 and 1.36.
- 1.3180 is providing support, and has strengthened as the pair has crossed above 1.32.
- 1.3240 is the next line on the upside.
Euro/dollar slightly higher in thin trading – click on the graph to enlarge.
- No scheduled releases.
For more events and lines, see the Euro to dollar forecast
- Strong US manufacturing data bolsters dollar: US data looked sharp throughout last week, and Friday’s Core Durable Goods Orders caught the markets off guard, with a robust 1.6% gain. The markets had forecast a slight decline, marking the third straight reading that the markets have badly underestimated this key manufacturing indicator. The dollar benefited from this, and posted gains on Friday against the euro and other major currencies. If the recent trend solid US data and weak Euro-zone releases continues, we could see a correction in EUR/USD with the dollar bouncing back.
- Fiscal cliff impasse continues as ‘Plan B’ bombs: The fiscal cliff crisis shows no sign of a breakthrough with only a few days to go before sharp spending cuts and tax hikes are activated, unless action is taken by Republican and Democrat lawmakers. The rhetoric on Capital Hill is getting shriller, with each side blaming the other for the impasse. Republican House Leader John Boehner warned that if the President Obama doesn’t show more flexibility, he will be “responsible for the largest tax increase in American history.” The White House countered that each side has to compromise, and it is willing to “fall over the cliff” if the Republicans don’t sweeten their offer. There were some red faces on the Republican side last week, as Boehner tried but failed to pass a “Plan B” that would have avoided tax hikes for all Americans earning less than $1 million per year. However, the motion was withdrawn, in what turned out to be little more than a futile political exercise. Meanwhile, Congress is on vacation until December 27th, just days before the fiscal cliff kicks in. The crisis could have a major impact on the markets, and if there are further developments out of Washington later this week, EUR/USD could show some movement.
- Italian PM 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. 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 are also experiencing high unemployment. With these major economies facing small or even negative growth, 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.