There are not many new issues on the table for investors this week, at least up to the time of writing. The main issues remain the ‘fiscal cliff’ for the US and the overall debt issues surrounding eurozone countries. The lack of new concerns helped lift risk appetite but other factors also lifted the mood.

Due to the impending US fiscal cliff, the eurozone has been spared the limelight, at least for now- Rudolf Muscat

The positive tone at the end of last week continued to usher positive figures for those assets usually associated with risk, and that would have sold off in times of concern. US equities managed to shrug off a negative week at close last Friday, support which continued even at start of this week. What triggered the positive mood?

In reality fiscal cliff talks are only expected after Thanksgiving today and Congress is adjourned until mid-next week. However, investors built hopes on what has been interpreted as a promising meeting between President Barack Obama and the congressional leaders, and that pushed investors to believe that a deal could be reached before Christmas. US Treasury Secretary Timothy Geithener was also quoted last Friday saying, that a deal on the fiscal situation could be reached in what he termed “weeks”.

Due to the impending nature of the US fiscal cliff, the eurozone has been spared the limelight at least for the time being. Yet Greece still manages to capture headlines especially given that last Tuesday the eurozone finance ministers were expected to give their approval for the €44 billion emergency loans due for Greece, money which will only be paid on December 5.

Late on Monday evening, just after the US session Moody’s surprised markets with a one notch downgrade to France, the second largest eurozone economy. France lost its AAA rating and slipped to next notch at Aa1. Having caught markets by surprise the EUR/USD currency pair slipped around 50 pips lower ahead of the Asian session.

The move lower was relatively short-lived, and EUR/USD managed to recover the move early into the European session. In reality France is left with an Aa1 rating which in itself remains a good enough credit rating and Moody’s was just catching up with S&P’s, which had already downgraded France back in January.

The GBP is overall lower for the current month despite the gains made against the JPY. At the start of the current week, GBP was close to flat, as the gains made against the JPY and the USD offset nearly all the losses against the rest of the majors. Against the weaker USD the GBP managed gains of +0.14 per cent touching highs of 1.5936 up to earlier this week. Against the euro, the GBP shed -0.30 per cent hitting highs of 0.8027 within the same time frame.

In terms of data issued last week from the United Kingdom we had inflation for October coming out stronger than anticipated, both CPI and PPI readings rose higher than the expected and the previous figures.

On the other hand, ILO unemployment rate for September eased slightly lower even though than the claimant count for October rose by 10,100. October retail sales, issued last Thursday, also surprised lower.

The improved risk appetite left its mark on the JPY but in the background traders trading the currency were also eyeing a Bank of Japan policy rate decision that was released early Tuesday morning. The BoJ opted to keep interest rates unchanged at 0.1 per cent, probably preferring to caution ahead of general elections in December.

The BoJ also left its asset purchases untouched and will continue at the same pace. Analysts are anticipating further easing from the BoJ as early as December. The JPY is also finding itself subject to speculation as a most likely candidate for prime minister, reportedly favoured at the polls, is expected to step up pressure on the BoJ for more stimulus.

Despite up 0.67 per cent since November 1, the price for gold seems to be lacking the necessary momentum for more price action. The yellow metal has seen highs of $1738.83 so far this month. With two of the major market concerns seemingly under control, US fiscal cliff and eurozone debt issues, one would have expected the price of gold to slip lower. However, it seems that the selling pressure has been well absorbed and price has managed to hold on, also helped by the weaker USD.

Upcoming FX key events
Today: German and EZ PMI Manufacturing & PMI Services; UK CBI Trends.
Tomorrow: German GDP, Canadian CPI.

Technical key points
EUR/USD is neutral.
EUR/GBP is bullish target 0.8220, key reversal point 0.7950.
USD/JPY is bullish, target 0.83, key reversal point 79.25.
GBP/USD is bearish target 1.5770, key reversal point 1.6050.
USD/CHF is neutral.
AUD/USD is neutral.
NZD/USD is neutral.

trading@rtfx.com

RTFX Ltd is licensed to conduct investment services business by the Malta Financial Services Authority. This information does not constitute an offer or solicitation and is provided for information purposes only. This information shall not be deemed to constitute advice and should not be relied on as such to enter into a transaction or for any investment decision. Any opinions expressed in this document represent the views of RTFX at the time of preparation. They are subject to change without notice. RTFX believes that the information contained herein is accurate as at the date of publication. No warranty of accuracy is given by RTFX and no liability in respect of any errors or omissions, including any third party liability, are accepted by RTFX or any director, officer or employee.

Rudolf Muscat is a senior trader at RTFX Ltd.

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