Renewed efforts by US lawmakers to reach a budget deal before a set of automatic tax increases and spending cuts, known as the "fiscal cliff", go into effect at the beginning of the year, helped higher-yielding currencies regain some of their recent losses on Friday. This week, in addition to "fiscal cliff" news, traders will want to pay attention to a batch of US data scheduled to be released during the second half of the week. Specifically, Wednesday's ISM Manufacturing PMI, Thursday's ADP Non-Farm Employment Change, and Friday's all important Non-Farm Payrolls figure are all expected to generate heavy volatility in the marketplace.
USD - Significant US News Set to Impact Dollar This Week
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After seeing significant gains against its riskier currency rivals during morning trading on Friday, the US dollar turned bearish amid renewed efforts by US lawmakers to reach a budget agreement before the upcoming "fiscal cliff". Against the Swiss franc, the dollar, which had gained close to 60 pips during the first part of the day, fell more than 50 pips before closing out the week at 0.9133. The GBP/USD advanced more than 80 pips during the European session and eventually finished out the day at 1.6168.
This week, news out of the US is forecasted to have a significant impact on the marketplace. If US lawmakers are unable to reach a budget agreement before automatic tax increases and budget cuts go into effect at the beginning of the year, risk aversion may boost the USD and JPY. Later in the week, traders will not want to forget to pay attention to the US Non-Farm Payrolls (NFP) figure. Widely considered the most important indicator on the forex calendar, the NFP consistently generates heavy volatility.
EUR - US "Fiscal Cliff" News Set to Impact Euro
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After falling against several of its main currency rivals during the first part of the day on Friday, the euro was able to recover some of its losses, amid hopes that US lawmakers can reach a budget deal and avoid the upcoming "fiscal cliff" of tax increases and budget cuts. The EUR/USD, which had dropped close to 90 pips during morning trading, was able to recover most of its losses before closing out the week at 1.3217. The euro fell more than 100 pips against the Japanese yen, eventually trading as low as 113.25, before a slight upward correction to finish out the week at 113.67.
This week, "fiscal cliff" news is likely to have the biggest impact on the euro. With the deadline to reach a budget deal quickly approaching, the euro may see significant losses during the coming days if US lawmakers fail to resolve their issues and investors shift their funds to safe-haven assets. Later in the week, traders will want to pay attention to key US employment data, with better than expected news likely to boost higher-yielding assets, including the euro.
Gold - Hopes for "Fiscal Cliff" Deal Lead to Minor Gold Losses
The price of gold took moderate losses during the European session on Friday, as hopes that US lawmakers can reach a budget deal and avoid the upcoming "fiscal cliff", led to some risk taking in the marketplace. The precious metal fell by more than $7 an ounce over the course of the day before closing out the week at $1655.24.
This week, with all eyes on how the budget crisis in the US is going to turn out, traders can anticipate significant volatility for gold. If the "fiscal cliff" of tax increases and budget cuts is avoided, risk taking among investors could result in gold taking additional losses in the coming days.
Crude Oil - Oil Prices Fall after US Inventories Report Released
The price of oil fell by close to $1 a barrel during afternoon trading on Friday, after a higher than expected US Crude Oil Inventories figure led to concerns that American demand is weakening. Crude ended up finishing out the week at $90.70, down some $0.80 for the day.
This week, news out of the US, specifically any developments in "fiscal cliff" negotiations and the Non-Farm Payrolls (NFP) report on Friday, are likely to impact oil prices. Should US lawmakers agree on a budget and avoid the "fiscal cliff", or if the NFP report comes in better than expected, risk taking among investors is likely to boost oil prices.
The Bollinger Bands on the weekly chart are beginning to narrow, indicating that a price shift could occur in the coming days. Additionally, the Slow Stochastic on the same chart has formed a bearish cross, signaling that the price shift could be downward. This may be a good time to open short positions.
Most long-term technical indicators show this pair range trading, meaning that a definitive trend is difficult to predict at this time. Traders may want to take a wait and see approach for this pair, as a clearer picture is likely to present itself in the near future.
A bearish cross on the weekly chart's Slow Stochastic indicates that this pair could see downward movement in the coming days. Furthermore, the Relative Strength Index on the same chart has crossed over into overbought territory. This may be a good time for traders to open short positions.
The Williams Percent Range on the weekly chart has dropped into oversold territory, indicating that an upward correction could occur in the near future. Additionally, the Slow Stochastic on the same chart has formed a bullish cross. Opening long positions may be the smart choice for this pair.
The Wild Card
The Slow Stochastic on the daily chart is close to forming a bullish cross, meaning that this pair could see upward movement in the near future. Additionally, the Williams Percent Range on the same chart is currently in oversold territory. This may be a good time for forex traders to open long positions ahead of possible upward movement.
Article Source: All Eyes on US as "Fiscal Cliff" Deadline Approaches