We got ever so close to it, but in the end, Congress made sure that we avoided falling over the fiscal cliff. As the markets waited to see if the House of Representatives would pass the bill approved in the Senate, late last night, early this morning, the bill was passed in the house by a vote of 257-167.
The Senate had already passed the deal, that excluded spending cuts by a vote of 89 to 9 count in favor of a deal that would avoid tax hikes for individuals earning up to $400,000 a year and families earning up to $450,000 a year. The bill also includes a tax rate hike from 35% to 39.6% for those families earning over $450,000 and single earners of over $400,000 per year.
Unemployment will be extended for a year for about 2 million people. While spending cuts were not addressed in the package, President Obama pledged to “reduce the deficit through a combination of new spending cuts and new revenues from the wealthiest Americans.
Traders accepted the news and immediately looked to add “risk on” positions which has benefitted the EUR, AUD, CAD and GBP while going against the USD and JPY. The JPY continued to be the weakest currency as the new year begins. Comments from the new Economic Revitalization Minister, Akira Amari that a new BOJ governor will be appointed after present governor Shirakawa’s term expires in April was no surprise.
His comments made it clear that the new BOJ governor will be expected to work more closely with the government so that the central bank can help restore Japan as a major economic power and share “the sense of crisis as an organization of the state”. USD/JPY is currently trading around 87.10 after having reached a high of 87.32 overnight. Support for the JPY is at 86.90, while resistance appears at 87.40.
The EUR rallied on the fiscal cliff news going as high as 1.3299, before profit taking trades pushed the currency back to it’s present 1.3255-60 area. While the news on the fiscal cliff benefitted the EUR, that news is now behind us. All the rhetoric from the last 11 months becomes a memory when President Obama signs the bill this morning.
There was economic news that came out of the Euro zone this morning. December PMI data throughout EUR was released. French PMI was in line with predictions, rising 0.1 to 44.6. Spanish PMI eased to 44.6 from 45.3, which was below the consensus of 45.1. Italy rose to 46.7 from 45.1, exceeding expectations of 45.3. Greece eased from 41.8 to 41.4, while Germany fell to 46.0 from 46.8, with the expectation at 46.3.
With the attention given to the US over the fiscal cliff negotiations over, traders will once again begin to focus on the individual merits of currencies and their respective country’s economies. As risk trades were added overnight, the AUD has improved to just under the 1.0500 level, while USD/CAD has moved back towards .9850 after moving as high as .9940 before the agreement.
Expect the US equity markets to continue the rally that we saw on Monday as traders there will be adding risk on trades as well.
As for the currencies, expect the risk euphoria to play out for a few more days, but then traders will be looking at the “next” news item.
As for the EUR, a test of the 1.3300 level should be expected, while support for the single currency is at the 1.3225 – 1.3200 area.
Further reading: Gold Could Hit New All-Time Highs In 2013 – Elliott Wave Analysis
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