Traders are back on risk aversion mode and the US dollar is forecast to register gains over its Australian counterpart today. Just a day removed from the holidays, and fresh debacles in the US Congress has already rattled the risk sentiment of the markets. With the Euro Zone able to reach a deal that would placate the markets for the meantime; the focus turns back to the world’s largest economy and its looming fiscal cliff.
The US fiscal policy standoff led to Asian shares ending a seven-day winning streak earlier today, as investors indulged in heavy profit-taking on disappointment over the negotiations in Congress. The story was the same for European equities, as elated investor sentiment over Tuesday’s optimism on a Greek debt deal was replaced with renewed fears over the US fiscal cliff.
US Senate Majority Leader Harry Reid said that he is “disappointed” in the lack of progress in discussions to avoid the so-called fiscal cliff. “We only have a couple weeks to get something done, so we have to get away from the happy talk” and do “specific things.”
Analysts price in the viability that market focus would remain on discussions over a collection of $607 Billion in automatic tax increases and spending cuts scheduled to take effect at the beginning of 2013 to prevent a short-term shock to the economy and reach an agreement on long-term deficit reduction. Some think that it is likely that Congress will find some weak compromise and push off some of the work into next year.
“Prolonged negotiations over the fiscal cliff create a risk-off environment,” said Daisaku Ueno, a senior foreign-exchange and fixed-income strategist at Mitsubishi UFJ Morgan Stanley Securities Co. in Tokyo.
True enough, risk appetite dipped and is expected to continue to sour until progress is made on the fiscal cliff negotiations. The AUDUSD is advised to be sold today, but expect technical price corrections to still ensue.
For more news, analysis, technical charts and candlestick analysis, visit AlgosysFx Forex Trading Solutions.
