Markets Optimistic On Resolution To Fiscal Cliff

President Barack Obama expressed confidence that he and Congress would reach an agreement that will avoid the automatic spending cuts and tax increases that are scheduled to occur at the end of the year. Obama arrived in Asia today on his first foreign trip since re-election, underscoring the region’s importance to U.S. growth but before he left for Asia, he began on a new round of deficit-reduction talks with top Republicans and Democrats in a bid to avoid the combination of $607 billion in automatic tax increases and spending cuts that threatens to throw the country into a recession next year.

European finance ministers aim to stitch together Greece’s next aid payment this week as a sputtering euro-area economy and a spat with the International Monetary Fund cloud efforts to resolve the debt crisis. The finance chiefs are due to meet in Brussels tomorrow for the second time in a week after they agreed seven days ago to keep Greece’s bailout aid flowing. In addition to a disagreement between the European Union and IMF over softening Greece’s debt target, the ministers will attempt to re-engineer the current bailout without asking taxpayers to put up more money.

Bank of England policy maker David Miles said there is more the central bank can do to boost growth if the recessionary conditions gripping the U.K. economy persist. Bank of England Governor Mervyn King gave a gloomy assessment of the economy last week, saying gross domestic product may shrink in the current quarter and that the road to recovery will be “long and winding.” He held out the prospect of further asset purchases after the Monetary Policy Committee voted this month to halt the program at 375 billion pounds ($596 billion).

EUR/USD: The EUR/USD traded within the range of 1.27831 and 1.26892 on Friday, as concerns over Greece persisted amid disagreements between the International Monetary Fund and Europe on how best to reduce Greece’s debt to manageable levels and on concerned over the U.S. fiscal cliff, automatic tax hikes and spending cuts due to come into effect on January 1.

Today, the pair was trading flat at 1.27573 at the time of writing as investors turned prudent ahead of key risk event, the Existing Home Sales in the U.S. Purchases of existing homes held at a 4.75 million annual rate last month, according to the median forecast in a Bloomberg survey. Housing starts eased in October to an 840,000 pace from a four-year high of 872,000 units in September, Commerce Department figures may show November 20.

Moreover, investors are waiting for the latest developments and headlines from the eurozone regarding the debt crisis and the fiscal cliff in the U.S. Other events likely to affect the movement of the EUR/USD in the week ahead are; Tuesday; the finance ministers of the eurozone will talk in Brussels to discuss financial issues in the bloc.

Meanwhile, Germany will release official data on producer price inflation, while the U.S. will publish official data on building permits, an excellent gauge of future construction activity, as well as data on housing starts. Wednesday; Spain and Germany will hold auctions of 10-year government bonds. On the other hand, the U.S will release reports on initial jobless claims and crude oil inventories.

This data is being released one day early ahead of the Thanksgiving holiday on Thursday. In addition, the University of Michigan will release revised data on consumer sentiment and inflation expectations. Thursday; the eurozone will release preliminary data on manufacturing and service sector activity.

Meanwhile, Germany and France will release individual reports. Moreover, European Union leaders are to hold the first day of a two-day summit in Brussels to discuss Spain and Greece and plans for greater integration of fiscal and monetary policy in the region.

Friday; EU leaders will hold a second day of talks in Brussels to discuss Spain and Greece and plans for greater integration of fiscal and monetary policy in the region. Germany will release a report on business climate. Investors should watch all data to better assess the trend of the pair. The resistance level is at 1.28687 and the support level is at 1.26450 on the weekly chart.
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USD/JPY: The pair traded higher on Friday after Japan’s Prime Minister Yoshihiko Noda dissolved the lower house of parliament, setting the stage for elections in December, which are likely to see the opposition party, which advocates more aggressive monetary easing measures, come to power.

The pair was trading lower at 81.157 at the time of writing on market corrections and ahead of a two-day meeting by the BOJ. In a Bloomberg News poll of economists, all 21 economists surveyed expect BOJ Governor Masaaki Shirakawa’s board to take no action at the policy meeting that ends tomorrow. On the other hand, Liberal Democratic Party leader Shinzo Abe was reported to have said he’ll choose someone in favor of inflation targets as the next BOJ governor.

Meanwhile, concerned over the U.S. fiscal cliff and concerns over Greece and Spain are weighing on the market sentiments. Other news in Japan likely to affect the trend of the pair this week; Tuesday, the BoJ will announce its benchmark interest rate and the central bank will hold a press conference to discuss the monetary policy decision after the rate announcement.

Wednesday; Japan will publish official data on the trade balance, while the BoJ will release its monthly report. Investors should also focus on data which will be released in the U.S this week to better assess the trend of the pair. The resistance level is at 82.234 and the support level is at 80.522 on the weekly chart.
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Oil (WTI): Oil was trading higher at 87.780 at the time of writing after Israel said it may expand an assault on the Gaza Strip and U.S. House Speaker John Boehner indicated budget talks with President Barack Obama were constructive. Israeli Prime Minister Benjamin Netanyahu said yesterday that the army is prepared to “significantly widen the operation,” raising concern Middle East unrest will disrupt oil supplies. Saudi Arabia’s oil exports rose in September to 7.28 million barrels a day as local refineries cut processing by almost 15 percent, according to data posted on the Joint Organizations Data Initiative website yesterday.

In addition, Obama and congressional leaders met Nov. 16 to discuss how to avert the fiscal cliff, a combination of spending cuts and tax increases that threaten to throw the world’s biggest crude user into a recession next year. Investors should remain prudent and focus on developments relating to the U.S. fiscal cliff, as well as Tuesday’s meeting of the euro group of finance ministers to discuss unlocking Greece’s next aid installment. Ongoing tensions between Israel and the Palestinians in Gaza will continue to affect market sentiments for the commodity. The resistance level is at 91.231 and the support level is at 84.988 on the weekly chart.