FOREX: EU Summit and Fiscal Cliff Meeting Send Euro Above 1.31

Talking Points

• Euro higher following Obama-Boehner meet and EU summit
• Yen sees further losses as stimulus bets rise on manufacturing pessimism
• Chinese stocks rise 4% on flash manufacturing PMI

The best way to summarize today’s session thusfar is to say that the Euro is higher and the Yen is lower.

The first day of the two-day EU leaders summit ended with a lot of optimistic headlines, as the summit went over recent agreements to provide Greece with the next tranche of aid and to appoint the ECB as a supervisor of major Euro-zone lenders. The summit headlines combined with the report of a late day meeting between US President Obama and US House Speaker Boehner about the fiscal cliff provided enough risk appetite for the Euro to rise above the key 1.3100 line against the US Dollar, a level which the pair had failed to break over the past few days.

Meanwhile in Japan, the signs are increasing that more stimulus will be added in the upcoming Bank of Japan meetings. The Tankan Survey for Q4 fell to -12, the most pessimistic survey of manufacturers in nearly 3-years. The pessimism is due to the diplomatic dispute and the ongoing crisis in Europe. The elections for Prime Minister will take place on Sunday, and polls are showing a decisive win for LDP’s Abe. Abe’s term will only last until the next elections in July, and he has said that he will pressure the BoJ to significantly increase stimulus over that time. The next BoJ meeting will take place on December 20.

USJPY set a new 9-month high in today’s session and just missed breaking 84.00. The pair reversed a lot of the gain during the European session and is currently trading back at 83.76. A year and a half high at 84.17 could continue to provide resistance, and support could be provided by the broken resistance at 82.50.

In China, the flash HSBC manufacturing PMI came in at 50.9. The better than expected PMI was a relief to worries that Chinese growth is slowing, and the Shanghai Composite Index rose more than 4%.

Coming up in Europe, PMI’s and inflation for the Euro-zone will be released shortly. Investors should keep an eye open to see if EURUSD can stay above the 1.3100 line.

USDJPY Daily: December 14, 2012

Asia Session: What Happened

Euro Session: What to Expect

Critical Levels

--- Benjamin Spier