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Cliff Deal Passed – EUR/USD reaction

Congress approved a deal that prevented huge spending cuts and tax increases, dubbed “Fiscal Cliff” which could have great ramifications on the US economy. Markets welcomed the news, pushing stocks, commodities and risk currencies higher on the 1st day of trading in 2013.

Early fears that House may reject last minute concessions made by the Senate did not rattle market, with prices soared early on without looking back. USD remained offered heavily during early Asian trade until the House votes for “Cliff Deal” reached majority (see USD chart below)

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Despite the USD weakness which saw GBP/USD pushed above 3 month highs, EUR/USD failed to take hold of 1.3, keeping trading range of 1.316 – 1.33 in play.

EUR/USD Daily Chart

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EUR/USD 5 Min Chart

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5 Min chart also suggest potential weakness as price threatens to break the short-term rising trendline. Interim support could be found around 1.3275, with a break opening up 1.325 as further support. Traders could be still wary about the looming Europe Crisis to stay upbeat about the EUR for long, especially when lucrative alternative such as AUD/USD with higher carry are available to trade USD weakness.

Regardless, there are still further reasons to cheer for EUR, with Italian and Spanish 10 yr bond yields trading lower – a sign of optimism in Eurozone. Though questions remains whether such optimism can last till a proper resolution of the EZ crisis is found.

 

This article is for general information purposes only. It is not investment advice or a solution to buy or sell securities. Opinions are the authors; not necessarily that of OANDA Corporation or any of its affiliates, subsidiaries, officers or directors. Leveraged trading is high risk and not suitable for all. You could lose all of your deposited funds.

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