Fiscal Cliff Triggers Risk-Off Mood and High Volatility on World Markets

Forex News and Events:

The negative risk sentiment triggered the decline of all markets overnight. The Asian markets closed the day in the red area, European futures and the commodities collapsed. The Jan 1st deadline to resolve the “fiscal cliff” issue is approaching dangerously fast, yet the President Obama and the House Speaker John Boehner did not manage to reach an agreement to avoid the tax increases and the spending cuts that will take effect in 2013. Even though the quarterly growth data came in 10% better than expected, the S&P500 index didn’t react positively to “good news”. The market is focused on the longer-term growth concerns, because if the US leaders do not take action quickly, the US economy will face a deep recession and bring the world economy down with it. The markets are confused, and the volatility increased by 8% since the beginning of the week. The S&P500 opened insignificantly higher and showed a bearish trend in the beginning of the session. The down move got support at 1,432.82 level, and reached 1,443.69 at the end of the day. Gold collapsed from 1,670.27 down to 1655.63 within a few minutes and the Brent crude made a sharp downside move from the last two-week-highs (around 110.50 levels) down to 109.40. Overseas, Nikkei opened the session in a positive mood, rallied up to 10,175.06 but collapsed to 9,924.42 as the Republicans scrubbed a vote on their “plan B” on opposition from the far right. BoJ loan support may work to guide JPY downward, central bank likely to embrace 2% inflation target in January as reported by Nikkei. Indeed, the Japanese Yen lost against all of its major counterparties. USDJPY is, currently, trading over 84.00, while the relative strength index is already over the 70% oversold limit. The next support levels are at 83.75 (March high), 82.50 (last month’s strong resistance) and 82.00 (psychological level). On the Eurozone, the European stock index, SXXP, wrote-off the three-day-gains and collapsed to 279.90. The European markets still trade at the year-highs, as the ECB expanded asset purchases. EURUSD is still in the bullish trend from the mid-November. Despite the corrective downside, we expect the currency to test higher levels, if the 1.3145 (September and November high) support holds tight. Further supports are 1.3100 (psychological level), and 1.3044. On the upside, watch the 1.3375 area (March / April highs) and 1.3493 (year-high). As of this morning, the German consumer index decreased, while the French business indicator was in line with the expectations and the Italian consumer confidence beat the expectations. Today’s agenda consists of the UK quarterly and yearly GDP, UK 3Q current account, the Canadian Gross domestic product, Consumer price index and Core CPI as well as the US durable goods orders.

Forex News

Today's Key Issues (time in GMT):

2012-12-21T11:30:00 EUR UK quarterly and yearly
2012-12-21T11:30:00 EUR UK GDP,
2012-12-21T11:30:00 EUR UK 3Q current account
2012-12-21T13:30:00 CAD Canadian Gross domestic product
2012-12-21T13:30:00 CAD Consumer price index
2012-12-21T13:30:00 CAD Core CPI
2012-12-21T13:30:00 USD US durable goods orders

The Risk Today:

EURUSD EURUSD has reached a 1.3253 high. With momentum indicators point higher we expect that near-term resistance will be challenged. A break of 1.3284 would trigger an extension of strength to 1.3389. The first level of resistance are located at 1.3284 (1st may high), 1.3387 (27th Mar High) then 1.3492 (2012 high). The next support is located at 1.3144 (resistance turned support), 1.3100 (psychological support), 1.2931 (11th Dec low), 1.2878 (7th Nov reaction high), 1.2781 (200d MA), 1.2722 (13th Nov pivot high), 1.2630/62 (3rd July high & 100d MA), 1.2463 (31st Aug low), and 1.2386 (14th & 17th Aug high).

GBPUSD GBPUSD write-off yesterday gains and traded within the 1.6236 -60 range amid the failing negotiations between the President Obama and the House Speaker Boehners.The support zone is located at 1.6071 (7th Dec low), 1.5958 ( 28th Nov. low), 1.5930 (100d MA), 1.5826 (15th Nov low) 1.5745/53 (30th July pivot), 1.5665 (uptrend channel floor), 1.5564 (8th Aug low), 1.5656 (intraday low),1.5458 (26th July low), 1.5405 (8th June low), 1.5390 (6th June low), then 1.5266 (13th Jan low). Watch for next resistance to come into play at 1.6295 (yesterday's high), 1.6310 (21st Sept high) and 1.6454 (29th Aug ’11 top).

USDJPY USDJPY collapsed to 83.86 in the early morning, but managed to slip over 84.00 psycological resistance. BoJ loan support may work to guide JPY downward, central bank likely to embrace 2% inflation target in January as reported by Nikkei. Above us, minor resistance remains at 84.45 (19th Dec high), 85.54 (15th Mar high) then 85.75 (2011 peak). On the downside, some support is eyed at 83.67 (13th Dec high), 83.14 (downtrend top), 81.50/69 (15th Nov. high & 28th Nov. low), 81.00 (16th April pivot), 79.06 (9th Nov low), 78.75 (8th Oct high), 77.94 (Symmetrical triangle floor), 77.12 (13th Feb low) then 76.03 (3rd & 17th Jan low).

USDCHF USDCHF recovered from the week's sell-off and managed to reach 0.9150 level. As the risk appetite decreases, the safe-heaven currency should add to its gains. the first levels of support should be located at 0.9100 (11th May high) then 0.9041(1st may low). The next levels of resistance are located at a distant 0.9383 (7th Dec high), 0.9428 (200d MA), 0.9457 (21st Sept high), 0.9515 (13th Nov high & uptrend top), 0.9610 / 20 (26th Aug high), 0.9810 (10th Aug high & uptrend channel), 0.9900 (2nd Aug high), and 1.0000 (psychological resistance).

Resistance and Support:

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