Fiscal cliff talks set to glide into the New Year
By Michael Hewson (Senior Market Analyst at CMC Markets UK)
It?s one thing when Republicans can?t agree with Democrats on tax rises and spending cuts with respect to the on-going saga of the fiscal cliff negotiations, but quite another when Republicans can?t even agree amongst themselves as House leader John Boehner?s much trumpeted plan B went the way of the fairies as Republicans couldn?t even agree amongst themselves about what form plan B would take, and as such the vote on it was pulled.
This lack of agreement pretty much guarantees that any solution is likely to push beyond the January deadline and increase market uncertainty at a time when volumes will be a lot lighter than usual.
Given that today is supposed to be the end of the world I suppose we shouldn?t be too surprised at the lack of progress, but most market participants are by now probably losing the will to live as we head into the Christmas break, with European markets expected to open lower this morning as a result.
Economic data in the US continues to come in mixed with Q3 GDP improving much more than expected yesterday, as did the latest Philadelphia Fed numbers, contrasting sharply with this week?s earlier disappointing Empire manufacturing numbers.
Today the latest durable goods numbers for November are expected to show a gain of 0.2%, down from the 0.5% in October, while personal spending for November is expected to rise 0.4%, no doubt as a result of the increase in retail activity around the Thanksgiving break.
In the UK we have the final revision of Q3 GDP which is expected to confirm that the UK economy grew at 1% while we also have the latest borrowing figures for the UK public finances for November which is expected to show that the Chancellor is as far away as ever from meeting his borrowing target for the current fiscal year.
EURUSD ? after this week?s high of 1.3305 the euro is currently finding support at the 1.3170/80 area that was resistance on the way up. The gravestone Doji on the daily charts earlier this week continues to suggest we could well have seen the highs in the short term.
A move back below 1.3170 suggests a deeper pullback towards 1.3020 and then 1.2880.
Only a move below the 1.2880 level opens up a move back towards the trend line support from the 1.2050 low, which now sits at 1.2825, and the 200 day MA at 1.2790.
GBPUSD ? the cable continues to struggle to push beyond the November highs at 1.6310 and the gravestone Doji earlier this week still suggests we could be ripe for a sell-off. Support still remains at 1.6180 which had acted as resistance on the way up.
Trend line support from the 1.5830 lows now comes in at 1.6115, while the key support remains at 1.5980. Only a break through here targets major trend line support at 1.5885 from the 1.5270 lows, the 200 day MA at 1.5880 as well as 1.5660.
EURGBP ? another test of the 0.8165 level has failed once again keeping the risks for a move lower, while support at 0.8100 serves to limit the downside. The risk still remains for a move to the 0.8300 level, while a break below the 0.8080 level suggests a move back towards 0.8050 and trend line support from the July lows at 0.7755 which remains the key level for the uptrend to continue.
USDJPY ? we continue to remain on course for the 2011 highs at 85.55. Last week?s close at 83.55 should act as some form of support, though we could well slip back as far as the breakout level at 82.80.
If we do drop below this then there remains solid support at 81.70. If we break below 81.60 then the potential is there for a move towards 80.50, and even 79.90.
Equity market calls
FTSE100 is expected to open 20 points lower at 5,938
DAX is expected to open 50 points lower at 7,622
CAC40 is expected to open 9 points lower at 3,658