This morning is fairly devoid of economic news which has allowed the markets to take a break and pause. As we head into the holiday season, today is triple witching Friday and volume is expected to be light as positions are squared.
Last night, the tax cut bill was passed in the US House of Representatives much to the delight of business but to the chagrin of Washington DC. Yet futures are flat to slightly lower this morning as fear-based volatility has decreased.
In the EU, leaders were able to come to an agreement over how to handle the debt crisis in 2013 going forward, but didn’t address how to handle any problems between now and then. Meanwhile, Moody’s decided to cut Ireland’s credit rating 5 notches, which is very near junk status.
In the UK, consumer confidence figures fell to a 20-month low.
So we have mild risk-aversion this morning, with notable Euro strength.
In the forex market:
Aussie (AUD): The Aussie is mostly lower heading into the weekend but is trading higher against its commodity currency counterparts as mild risk aversion is not enough to trump the positive interest rate differential that the Aussie maintains.
Kiwi (NZD): The Kiwi is also lower for the same reasons as Aussie, trading higher against only the Loonie.
Loonie (CAD): The Loonie is lower across the board as it is the least desirable of the commodity currencies because of the low interest it pays. Nevertheless, the close correlation to oil prices could provide some volatility as traders roll their oil positions forward on expiration.
Euro (EUR): The Euro is higher as a resolution to the debt crisis after 2013 was agreed upon, though Irish credit ratings were dropped to near junk. This hasn’t stopped Germany from feeling good about itself, as IFO business climate, current assessment, and expectations figures came in higher than expected. (Click chart to enlarge)
Pound (GBP): The Pound is lower across the board as Consumer Confidence figures came in at 20- month lows with a reading of 45 vs. an expectation of 52. Perhaps the recent improved retails sales numbers are because people are buying ahead of the tax increase, but will it be enough to halt rising inflation? (Click chart to enlarge)
Dollar (USD): The Dollar is stronger this morning against all as the safe haven play going into the weekend and the start of the holidays next week is preferred. With the tax bill behind us and a massive spending bill scrapped in Congress, investors are starting to look toward the growth possibilities of next year.
Yen (JPY): The Yen is mostly higher as this morning’s open drifts toward risk aversion. Next Tuesday is the BOJ rate decision and while not expected to do anything about rates, could provide a backdrop for “new” ideas.
Today is starting out like a boring day with not a lot of action to speak of. Things typically slow down this time of year and with some of the political risk events now removed, volatility has decreased.
Now traders are turning their attention to next year, trying to figure out where the engines of growth may be and how to best invest to capture that growth. So keep an eye on the money flows, which may give a clue as to where the market believes that growth will come from next year.
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