Risk FX came under pressure Thursday morning in Asia, as optimism over the U.S. fiscal cliff deal faded away in thin markets and profit-taking took hold. In FX, there was a broad move out of safe-haven assets as traders continued to fret over the state of the U.S. fiscal situation despite Wednesday’s last-minute deal to avert the fiscal cliff. Worries were mainly centered on the increased U.S. spending cuts to come and the debt ceiling limit. Technically, the U.S. debt limit is not about sovereign risk or default, it is merely a political lever,” commented traders. “Although we expect Congress to lift the debt ceiling, a more persistent squabble resulting from the ongoing political dysfunction would be adding to the confusion, eventually sparking acute aversion to risk-taking and potentially spawning credibility problems.”
Euro-yen was one of the main movers this morning, despite the absence of Tokyo-based traders. The cross made cautious early gains after the overnight rise in U.S. stocks but gave up the gains soon after. Euro-yen traded up to Y115.17 initially and then slid back through Y115.00 for a Y114.73 low. It tripped over some stop-loss selling near Y114.95 on the way down and dragged euro-dollar and dollar-yen down with it. Dollar-yen was at Y87.28 in late Asian morning trade, after a Y87.09 to Y87.37 range, and about unchanged from Y87.28 at the U.S. close.
Euro-dollar this morning dropped from session highs near $1.3190 to $1.3124, and was last at $1.3133, after ending the New York session at $1.3186. The pair was pulled lower by euro-yen weakness earlier in the morning, with this then worsening after a series of stop-loss sell orders were hit below $1.3150, and is now likely to run into further stop-losses toward $1.3120, traders said. Any recovery would need a clear rise above the Dec. 19 peak at $1.3308 before the pair can hope to re-visit the late March/early April highs in the $1.3380-85 zone. A better-than-expected U.S. non-farm payroll result this Friday could be the catalyst for a push above that $1.3380-85 area, traders said. Friday’s release of U.S. non-farm payrolls loomed large and could be a key factor for risk sentiment going forward, depending on the result, traders said.
EasyForexNews Research Team