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Now that the US elections are behind us, politicians can begin working on a resolution of the “fiscal cliff”. However, they may opt to push the time frame back, says John Kicklighter of DailyFX.

In the interview below, Kicklighter discusses Greece’s issues, the fiscal cliff, influences on the Canadian dollar and more topics moving currencies.

John Kicklighter is a currency strategist for FXCM in New York where he specializes in combining     fundamental and technical analysis with money management. John authors a number of regular articles for  DailyFX.com, ranging in topics from basic fundamental forecasts for the G10 economies and commodities to more complex subjects like the level of risk sentiment across the financial markets and the carry trade specifically.    John has actively traded since he was a teenager. His experience ranges from spot currency, financial futures, commodities, stocks, and options on all of these instruments for his personal accounts. John graduated from the Zicklin School of Business at Baruch College in New York with a Bachelors degree in Finance and Investment.John Kicklighter

1. The Greek crisis is getting worse, with the IMF suggesting that in order to achieve the goals, euro-zone governments should take losses. Was it the chance that a “Grexit” could occur after the US elections?

Currently, Greece is simply trying to keep the situation status quo: just barely keeping forward progress. It is something very different altogether when we assess what it takes to hold back the tides of an exit versus actually proliferating within the euro area. Prime Minister Samaras himself stated that Greece needs and is looking for more than the next €31 billion tranche. Recent discussions with the Troika have no doubt brought up the need for more than just the previously-earmarked funds, but the political will to meet that need is exponentially lower than the current balance of opinion. Countries taking losses on Greek debt is a tall order for Germany, Austria, Finland, etc. Perhaps too tall.

2.  The SNB recently reported that it has lowered the relative holdings of euros. In case we see the euro dropping in value, is there a danger to the EUR/CHF peg?

The SNB played its hand well – a reflection of smart trading. With the euro rallying across the board and for EURCHF specifically as ‘tail risk’ is reduced, the bank has reduced its exposure in a liquid market. This move is actually a positive for their position going forward. If they have reduced their exposure to the euro, they have more room to take the currency onto its balance sheet going forward. That said, the net size of foreign exchange reserves continues to push a record high and there will be a point of failure where the government says this is unsustainable. Before that point, however, you will like see the SNB pull another move from its bag of tricks – potentially a floor raise or encourage the government to introduce a direct capital tax.

3. Many officials all over the world are now pointing to the US fiscal cliff as the most worrying topic for the global economy. Will a resolution of the fiscal cliff wait until the last moment? Or could we see some progress beforehand?

There are other issues for the global economy that carry proximate risk and may be a little further up on the time frame (the Euro Zone crisis, the Chinese power change and Japan’s own fiscal countdown). That said, the combination of the United States’ size, its lack of options and the clearly defined time frame make the Fiscal Cliff a potent driver. I doubt a satisfactory resolution will be found before the situation comes to a head. Instead, I expect a move to push the time frame back to delay the tough decision. The ‘buy time’ approach is common nowadays.

4. The Canadian dollar seems to have ignored relatively weak Canadian figures, and benefited from the strong US Non-Farm Payrolls report. Going forward, will the US economy be dominant in the loonie’s value? Or could the Canadian housing issue take over?

The US economic and financial conditions have always carried a serious influence over the relative performance of Canada. The same is true of Australia and China or the Eurozone and Switzerland relationships. Historically speaking USDCAD shows very limited reaction to Canadian data – even with a substantial ‘surprise quotient’. I would expect the market pays attention to the US side of this equation going forward unless the topic is an immediate shift in interest rate or financial stability for the Canada.

5. Can the Chinese regime change have a significant impact on the global economy? Is there a risk that it will not go smoothly and that we could see disruptions to the global economy?

The leadership change in China will have a serious impact on the global economy regardless of the outcome. If the new regime decides to take the country closer towards democracy and free markets, it will expedite China’s shift towards one of the dominate countries in the world and a top investment destination. Alternatively, the change could also lead to greater protectionism from both China and its trade partners if the regime clamps down on the advantages they maintain that many around the world consider ‘unfair’. Furthermore, China holds tremdendous foreign reserves including huge amounts of US Treasuries. This is a considerable, potential financial weapon to possess for a possibly very different leadership.