EUR/USD Dec 28 – Dropping on Fiscal Cliff Jitters

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EUR/USD is losing ground in Friday’s European session, as the markets will be closely monitoring developments in the fiscal cliff negotiations. Talks will continue on Friday as US lawmakers huddle to try and hammer out a deal before the January 1st deadline. Taking a look at yesterday’s (Dec. 27th) economic releases, the news was mixed. US Unemployment Claims looked very sharp, while New Home Sales disappointed, falling below the forecast.  CB Consumer Confidence also looked shaky, dropping to a four-month low. The markets will be busy on Friday, with releases from both Europe and the US. French Consumer Spending posted a small gain, and Eurozone Retail PMI fell to 44.5 points, its lowest level since August. Today’s highlight is US Pending Home Sales, the second key housing indicator in as many days.

EUR/USD Technical

  • Asian session: Euro/dollar was steady, consolidating at 1.3248. The pair has fallen sharply in the European session, crossing below 1.3190.
  • Current range: 1.3180 to 1.3240.

Further levels in both directions: 

  • 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 under pressure as the pair weakens.
  • 1.3240 is the next line on the upside.

Euro/dollar lower on fiscal cliff worries – click on the graph to enlarge.

EUR/USD Fundamentals

  • 7:45 French Consumer Spending. Exp. 0.0%. Actual +0.2%.
  • 9:10 Eurozone Retail PMI. Actual 44.5 points.
  • Tentative: Italian 10-year Bond Auction.
  • 14:45 US Chicago PMI. Exp. 51.2 points.
  • 15:00 US Pending Home Sales. Exp. -0.3%. See how to trade this event with USD/JPY.

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

EUR/USD Sentiment

  • Crunch time on the Hill: After all the rhetoric, mud-slinging and finger pointing, Republicans and Democrats must again try to find common ground and show more flexibility if the fiscal cliff is to be averted. If the sides can’t get their act together before January 1st, some 650 billion dollars in tax hikes and spending cuts will automatically kick in. This double-jab could rock the fragile US economy and stifle the nascent economic recovery. Talks on Thursday went nowhere, with Senate Majority Leader Harry Reid warning that the US was headed over the cliff unless the Republicans gave up some ground on tax hikes. Optimism at reaching a deal is fading fast, but negotiations will continue on Friday and the weekend.
  • Key US data disappoints: After posting some strong data last week, this week’s data was disappointing. New Home Sales came in at 377 thousand, falling below the forecast of 382K. CB Consumer Confidence, a key consumer indicator, dropped sharply to 65.1 points, its lowest level since August. The estimate stood at 70.3 points. Unemployment Claims did look sharp, falling to 350K, easily beating the estimate of 365K. Pending Home Sales will be released later on Friday, and if this key housing indicator also falls below the forecast, it could be sign of weakness in the US housing sector.
  • Italy passes budget, Monti Resigns: Italy is once again facing national elections as Italian Prime Minister Mario Monti announced his resignation. Italians will go to the polls early next year, and with the third largest economy in the Eurozone, the political instability could hurt the high-flying euro. 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. Monti waited for the 2013 government budget to pass before handing in his resignation. 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 struggling: 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.
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Kenny Fisher - Senior Writer A native of Toronto, Canada, Kenneth worked for seven years in the marketing and trading departments at Bendix, a foreign exchange company in Toronto. Kenneth is also a lawyer, and has extensive experience as an editor and writer.