US Stocks Collapse On ‘Fiscal Cliff’ Fears

A short-lived rally after Obama secured his second term as US President was dramatically reversed during the US session. The Dow Jones fell 300 points from highs and saw the dollar gain across the board on safe haven demand. The main cause was the immediate focus of investors on the looming US Fiscal Cliff crisis. Looking ahead, Weekly Jobless Claims forecast at 370k vs. 367k previously. Also ahead, October Trade Balance forecast at -45bn vs. 44.2 previously.

The Euro (EUR)
An initial rally to 1.2880 on the back of Obama’s victory and perceived continuation of the same Fed policy. US Treasury Yields dropped sharply and while this is usually negative for the USD the reason for the fall was an increase in demand for the safe investment. Eurozone concerns and the fiscal cliff concerns combined to push the EUR/USD to new cycle lows.

The Sterling (GBP)
Held up well finding support under 1.6000 and via EUR/GBP selling which is down below 0.8000 now. The upcoming BOE meeting where rates are forecast to be held at 0.5% also have a chance to increase UK Asset Purchase Program. The chance of more QE is put at 40% so there will be volatility after the announcement one way or another. Looking ahead, ECB Rate Meeting forecast to hold at 1.0% with Press Conference after. BOE Rate meeting with forecast to hold at 0.5% and Asset Purchases held at 375bn.

The Japanese Yen (JPY)
USD/JPY kept close to the Y80 level with the falling yields on US treasuries hurting demand for the competing safe haven. EUR/JPY led the selling down to Y102 and is threatening to fall further in Asia as risk aversion spreads and panic from longs liquidation.

Australian Dollar (AUD)
Was well supported even with the sharp drop in equities as the afterglow of the RBA decision to hold at 3.25% continued to support. Most crosses are in uptrends and Chinese soft landing hopes are improving. Update October Employment forecast at 18.7k vs. 14.5k previously.

Oil And Gold (XAU)
Gold was bought aggressively after Obama won up to $1730 resistance but we have pulled back to $1710. OIL/USD went straight back down to below $85 with the European and US Budget issues hurting the 2013 growth outlook.

Pairs To Watch
EUR/USD: In downtrend or waiting for Greece?

USD/JPY: Falling Treasury yields stop the rally?

TECHNICAL COMMENTARY