EUR/USD: 1.2770Now that the US election is over, President Obama is going to have his work cut out to find some middle ground with Congress in order to make headway on budget cuts to avoid the $600 bio "fiscal cliff" of tax hikes and spending cuts that will automatically be triggered on Jan 1 if no common ground can be found. The Republican Party wants to cut spending and avoid raising taxes, while Democrats are looking for a combination of spending cuts and tax increases. While both sides want to avoid the issue becoming a reality, the Republican controlled House of Representatives will not make things easy for Obama and this issue looks like being a drawn out affair, probably going right up to the 11th hour before any compromise can be reached. It is therefore unlikely that we are going to see much chance of a resumption of dollar strength while this, and the possibility of a US recession, taking the rest of the global economy with it, overhangs the market.
On the other side of the coin, Europe remains a basket case, and was not helped today by the EC downgrading the economic outlook for 2012/13. A contraction in the Eurozone economy is now expected by 0.4% in 2012 followed by miniscule growth of 0.1% in 2013.
More immediately, in Greece, the result of the vote on whether or not to accept the country's €13.5bn austerity package in order to receive the next tranche of the bailout funds is due in the next few hours, so it could be a busy Asian session. The word is that the vote will pass with a narrow margin. A no vote would send the Euro into a tailspin, while a positive vote will push it higher, but given the general strike and the massive and violent opposition to the cuts, any rally would probably be somewhat limited.
Elsewhere today, Spain, - not wanting to be kept out of the headlines -, saw industrial production fall by 7% in September y.o.y, nearly twice as much as expected. Not good, as seen in the Equity markets today (Dax, CAC -1.99%, S+P -2.37%).
We get the ECB I/R decision later on - no change is expected, but watch for Mario Draghi's Press Conference.
Technically we got roughly what we are looking for yesterday with the Euro rallying towards 1.2900, allowing us to sell for a turn lower, so far reaching 1.2735, before regaining the support at around 1.2740/50.
The picture from here looks a bit mixed and the Greek vote will drive direction. Today's low will be difficult to break (unless the vote is negative) with the short term charts being a little oversold. However a bearish flag appears to be forming, which would suggest a target of somewhere around 1.2610 (50% of 1.2042/1.3171). Before then 1.2735 should hold firm but there is not too much to hold it below there, with only the 100 DMA at 1.2633 likely to hold things up.
If we do manage to squeeze higher, the first sellers will appear at around 1.2800, with the 200 DMA at 1.2823 providing further resistance, ahead of the session high at 1.2875. It could be a choppy session and will depend largely on the Greek vote. Until then best to sit on hands and then go with the flow.
There is a bit of data out later today including German Trade Balance, Greek Unemployment, ECB Meeting/Interest Rate Decision/Press Conference, US Trade Balance.
