The USD and JPY remain under pressure as we hit the middle of the week before Christmas. Sellers of JPY abound as traders expect further easing from the Bank of Japan after they conclude their two-day meeting tomorrow.
Adding to the JPY’s woes was a widening trade deficit in November. Most analysts are now predicting a continuing sell off of the Japanese currency, with the average projection for USD/JPY being at 85 for the end of next year.
There are some analysts who are predicting a break of the 90 level next year as the markets expect new elected Prime Minister Abe to fulfill his promises for further easing by the Japanese Central Bank.
The EUR remained firm overnight after yesterday’s announcement that S&P actually raised Greece’s credit rating back up to B- from selective default, now that the country has completed its bond buy-back program. The S&P statement said “the stable outlook balances our view of euro zone member states’ determination to support Greece’s euro zone membership and the Greek government’s commitment to a fiscal and structural adjustment against economic and political challenges”. S&P left the door open for another possible change in Greece’s rating when it stated that “even after the buyback, Greece’s end of 2012 net debt-to-GDP ratio of over 160% of GDP remains onerous”. Adding to the positive EUR sentiment was this morning’s release of German IFO Business Climate index which rose to 102.4 in December from 101.4 in November. The consensus was for a move to 102.00.
Technically the EUR looks to test higher levels before the end of the week with the next target close at 1.3280. A break there opens the door to 1.3320. Support on the EUR is at 1.3220, then 1.3190.
Another day closer to New Year’s puts us another day closer to the edge of the fiscal cliff. Negotiations continue in Washington as lawmakers attempt to come to some sort of agreement before the Christmas holiday. Congressman Boehner and President Obama continue to negotiate and while some progress appears to be made, the two sides do not appear close to an agreement.
The House of Representatives may vote tomorrow on Boehner’s Plan B, a proposal to raise taxes on incomes above $1 million. The president had offered a plan that included a $400,000 threshold. Many feel that Boehner is using this vote to pressure the president and also keep his party from blame if no deal is reached. The both sides are close and I still expect a deal by Friday.
As for trading today, traders will keep their eyes on these negotiations. Anything good coming out of them will be EUR positive, USD and JPY negative. We have tested higher each day and that should not change today.
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