Vantage FX | Stocks and Aussie recover from Fiscal Cliff fears | 28th December 2012

December 28, 2012

It is all about the Fiscal Cliff again overnight with stocks and risk assets generally under pressure and the US dollar catching a bid after Democrat Senate Leader Harry Reid said he thought the US was headed over the cliff. The S&P fell to a low of 1402 before a slight recovery after Republican Senator Scott Brown posted on Facebook and Twitter that he was jumping on a plane to review a plan from the President.  News that the House will sit on Sunday December 30 at 6.30 pm from Bloomberg gave the recovery more fuel.

There really isn’t much to say about the outlook here given that it is so tied up with the whims of US politicians and their ability, or not, to reach a deal on the cliff. Can they? Will they? Who knows? A deal will get done eventually but it might take the Cliff and market’s reaction to get the deal done as it did back in 2008 when the Senate didn’t pass Hank Paulson’s first rescue bill. One big issue that we have no way to judge the impact of on negotiations is the apparent slip in Republican House Leader Boehner’s grip on power and the leadership after last week’s vote debacle. Can he really speak for his colleagues in negotiations or is he just an empty vessel now?

It makes it much harder to know what the outcome might be but suggests that if the President wants to land a killer blow then he can do it but the cliff might come first.

Anyway we may not be able to judge the actions of the people involved and only guess at the outcome but we do know there are some significant levels to watch  in the S&P 500 which is still driving sentiment and outcomes in other markets.

The blue box on the chart above contains two trendlines and the 200 day moving average at 1390, 1387 and 1385 respectively. Should the S&P fall down through here then the outlook darkens and a move back to recent lows at 1337 comes into the frame.

Now we always say respect levels until they break and aggressive traders can use this zone for longs with a stop and reverse should they wish to trade that way (usual caveats apply folks and please see disclaimer) but my indicators at the moment are pointing lower.

Elsewhere many eyes have turned to Japan and the new Government taking office. The Yen was under pressure again yesterday as it closes in on the old trendline we highlighted yesterday. Given it is above the 200 week moving average for the first time since 2007 it is clear that the trend in the Yen is turning but on the dailies it is looking extremely overcooked at the moment so we’ll see what kind of resistance this 86.45/50 region provides.

For the Australian dollar its last 24 hours have been heavily influenced by the moves in the S&P 500 as you can in the hourly chart above of the relative price moves since December 7th. The low of 1.0343 overnight was almost exactly at the point of the equity low and the move back to 1.0376 where the Aussie sits now has been on the back of the recovery of the S&P from more than 1% lower to just 0.23% lower with 33 minutes to go in US trade.

As you can see in the AUDUSD chart above this turned the last day’s candle from a negative to a positive and the bias based on the 4 hour charts is for a further recovery toward the 1.0420 region we highlighted yesterday.

Stocks

As noted above the US is recovering from the lows and with 29 minutes to go the S&P 500 is off just 0.2% at 1417, the Dow is down 0.21% at 13,087 and the Nasdaq off 0.17%. Earlier in Europe and before the harry Reid comments the FTSE was unchanged, the DAX up 0.26%, the CAC rose 0.59% and Italian stocks were 0.45% higher.

In Asia yesterday it was another positive day for Japanese stocks as the Yen weakened with the Nikkei rising 0.91%. The Hang Seng was 0.35% higher but in Shanghai stocks fell 0.59%. In Australia the All Ords rose 0.34%.

Commodities

Crude is approaching its 200 day moving average at $91.79 and closed trade at $91.00 overnight. Gold was uo 0.17% to $1662 while silver was 0.67% higher at $29.98.

Catch me on Twitter @gregorymckenna or @FX_Global

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