U.S. fiscal cliff uncertainty cast a pall over trading action Friday, with stock and commodity prices seeing additional slippage, despite relatively upbeat U.S. data. At the same time, hopes the cliff may yet be resolved prevented larger losses because market players were wary of a big-time risk rally in the event of success. Early in the day, the Chicago report showed an unexpected increase in the index to 51.6 seasonally adjusted in December from 50.4 in November, beating the median estimate of 51.0, and NAR pending home sales index rose to 106.4 in November, the highest level since April 2010 when it was 111.3. The financial market largely shunned these releases, with all eyes instead on U.S. fiscal cliff developments. President Barack Obama and Vice President Joe Biden met Friday afternoon with House Speaker John Boehner, House Minority Leader Nancy Pelosi, Senate Majority Leader Harry Reid, and Senate Minority Leader Mitch McConnell to discuss the fiscal cliff impasse. The House of Representatives return to work Sunday and could, in theory, vote for a Senate backed agreement, analysts said. Hints of resolution will support risk assets, while continued infighting will weigh on these instruments, they said. Monday will be the final day of trading for 2012, and traders griped that the market will either be up sharply or down sharply, depending on how fiscal cliff events in the U.S. unfold. The S&P 500 closed down 1.11% at 1402.43 Friday, after trading in a 1401.58 to 1418.10 range. At the close, the index was down 1.0% on the month, but up 11.5% year-to-date. The Thomson-Reuters Jefferies CRB index closed at 294.7761, after trading in a 294.4405 to 296.1315 range. At the close, the CRB was down 1.4% on the month and 3.4% on the year. In currencies, the euro was ending the week at $1.3222, in the middle of a $1.3166 to $1.3257 range. The pair topped out at eight-and-a-half month highs near $1.3308 December 19, and has since held a $1.3155 to $1.3295 range. If the U.S. fiscal cliff is resolved then, rising risk appetite and diversification back into the euro could lead to a move towards $1.3500 in coming months. However, lingering cliff uncertainty could stall further gains in the near-term, as could eurozone economic data disappointment come January, traders said. In other pairs, dollar-yen was closing at Y86.07, the second consecutive daily close above Y86.00 since August 2010. There is not much in the way of resistance until the July 28, 2010 high around Y88.11, which was also an important low from earlier in 2010. Despite the yen being 10% weaker against the dollar since early October, Jens Nordvig, global head of FX strategy at Nomura, saw scope for further yen weakness in 2013. Nomura looked for the Bank of Japan to move towards a 2% inflation target at the January meeting, well before the next BOJ governor is announced in April. Also, Nomura expected new foreign bond buying programs to be announced in Q2 2013. “All told, yen weakness related to the ‘new BOJ’ is set to be frontloaded,” Nomura said. Because of this, Nomura has revised its Q2 dollar-yen target to Y90 from Y85 previously. Looking ahead, last minute year-end positioning, to be seen Monday, could cause wild swings in thin liquidity conditions. Once in the New Year, attention will shift to key global data sets, including various purchasing managers indexes out Wednesday, China and eurozone PMI data Friday, and in the U.S., Friday’s release of U.S. non-farm payrolls The median estimate of economists projects U.S. non-farm payrolls to rise by 155,000 in December. Estimates range from 115,000 to 200,000. The unemployment rate is expected to remain unchanged at 7.7% (range 7.7% to 7.8%).
EasyForexNews Research Team