Risk assets were sold down in Asian trade Friday morning on heightened worries about U.S. fiscal cliff negotiations, which come just ahead of the Christmas holidays. In a major setback earlier, U.S. House Speaker John Boehner canceled a House vote on his so-called “Plan B” to avert much of the fiscal cliff because he is unable to pass the bill in the House. This is a major defeat for Boehner whose decision to abandon talks with President Barack Obama and pursue the “Plan B” strategy struck many lawmakers as incomprehensible. The White House subsequently issued a statement which said President Obama is determined to work with Congress on a way to avert a tax increase on most Americans. In the immediate aftermath, risk assets took a broad hit, led mainly by yen crosses and the euro. Euro-yen started the move lower, sliding from an early Y111.79 high to trigger some stop-loss sell orders near Y111.50. The cross then broke below Y111.00 before settling at a Y110.67 low. “As soon as the headlines flashed across the screens, people rushed to rid long risks,” commented a dealer. The move dragged euro-dollar and dollar-yen down as well. Euro-dollar was last at $1.3193, at the low end of a $1.3187 to $1.3251 range and down from $1.3244 at the U.S. close last night. The pair however managed to hold above $1.3170, the mid-September peaks, now seen as important support. It will need to vault Wednesday’s peaks at $1.3309 for upward momentum to mount again, traders said. In other pairs, dollar-yen was at Y83.92 after falling to a Y83.87 low from an initial high of Y84.44. As expected, overnight the Bank of Japan increased its asset purchases by Y10 trillion, which weighed on the yen, but failed to adjust its inflation goal from the current 1% level, which kept the yen from falling too far. Speculation that the BOJ will increase asset purchases further and raise the inflation target to at least 2% at the January meeting will keep the yen on the defensive. “The recent period of uninterrupted heavy yen selling may soon pause and be followed in the near-term by a modest corrective yen rebound as overly optimistic investor policy expectations subside,” commented a dealer. “Still the yen appears to have entered a long-term weakening phase.” Looking ahead, the outlook for FX remains cloudy especially with major financial centers closed for Christmas Tuesday and with Japanese markets also closed for a holiday on Monday.
EasyForexNews Research Team