House Speaker Boehner and President Obama, both key players in the fiscal negotiations, suggested that a deal may be possible before year end. The gyration in risk sentiment was also aided by a WSJ article from Fedwatcher Jon Hilsenrath, speculating that the Fed is likely to expand easing policies at its 11-12 December meeting.
According to Kathy Lien, Co-Founder at BK Asset Management, there seems to be a false sense of hope. The fundamental expert observes an unusual divergence between the performance of equities and currencies, which suggests that, "either equity traders are overly optimistic or currency traders are overly cautious."
"Given the back and forth comments from U.S. lawmakers, we believe that caution is warranted particularly since just yesterday Senate Majority Reid expressed disappointment on the lack of progress" Kathy adds.
What seems clear is that "markets have become increasingly headline driven", says Mitul Kotecha, Founder at Econometer. There is high susceptibility of risk reversals on any fresh lead regarding fiscal cliff developments. The analyst believes currencies will continue to be hyper-sensitive to risk-headlines, despite the bigger picture is one of well defined ranges.
"EUR/USD will struggle on the top side" he says. Mr. Kotecha made the comment after Moody's published its credit review on Greece, in which the agency stated that despite the recent debt deal, odds are still high that Greece will default on privately held debt. This statement, according to Mr. Kotecha, "will dent EUR sentiment..."
Short term bullish tendencies in the EUR/USD are set to extend, according to in-house technical expert Valeria Bednarik, as long as an acceleration above 1.2950 is seen, potentially exposing the 1.3010 weekly high, followed by 1.3040 price zone, "probable roof for today if the upside momentum continues" she notes.
Ian Copsey, Founder at Harmonic Elliott Wave, thinks "there may be potential for the correction to reach 1.2974-95 before lower again." Above there, a direct break above 1.3020 "would suggest we are more likely to see direct gains above 1.3038, 1.3056 and higher." On the contrary, "from 1.2990-95 or a failure at 1.2944, suggests direct losses back to 1.2880 low."