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Data/Event Risks

  • USD: Critical event today is the fiscal cliff discussions between the president and congressional leaders, although far too early to expect a deal. Market will want some sort of encouraging sound-bite from leaders, but instead both sides will probably play to their home audiences instead.
  • EUR: Apart from trade data, little of note today. Observe that Christine Lagarde has vowed to return early from Asian meetings to attend the Eurogroup discussion (on Greece) next Tuesday.

Idea of the Day

Currency markets are full of intriguing sub-plots at present – the yen’s sudden drop and whether it will be sustained, the dollar as the safe-haven during acrimonious fiscal cliff negotiations, the Aussie’s slippage, and Mervyn King’s preference for a weaker pound. Today may see some reversal of these mini-themes before traders look to re-initiate early next week.

Latest FX News

  • EUR: With both the yen and Aussie under assault, the euro has been a surprising beneficiary, despite worrying macro news. Shorts have been scurrying for the side-lines and there may be more to come. Be careful setting fresh shorts right now.
  • USD: Fed Chairman Bernanke sounding cautious on housing, saying that tight lending standards are still holding back the recovery. This is despite some better data on this front recently.
  • JPY: Another strong showing for stock markets on anticipation of change of government next month and anticipation of a sustained weaker currency. Risk of short profit-taking today.
  • GBP: Failed to really react despite very weak retail sales outcome. Still, King clearly favours a weaker pound, and the economy is still fragile. Could well see sterling underperform euro near term.
  • AUD: Reality has caught up with the Aussie over the past couple of days, not helped by more risk repulsion. Also, fresh signs that the RBA was a willing seller of new shiny notes to foreign central banks again last month weighed on the AUD. Continue to fade the range extremes of 1.02-1.06.