Daily Market Report 27/12/2012

With the Christmas festivities over, US lawmakers will be resuming negotiations to avoid a fiscal crunch by December 31st.

US Treasury Secretary, Timothy Geithner, stated yesterday that the US government will hit its statutory debt ceiling on December 31st as well declaring that he will take “extraordinary measures” to postpone a US default for about two months. The comments have caused some optimism with the pound bouncing off support levels to trade higher against the US dollar.

Against the Euro, Sterling seems to be struggling. Worries about the euro zone debt crisis have waned providing short term support for the single currency. In contrast, weaker than expected retail sales, rise in public sector net borrowing and a fall in consumer confidence have added concerns to the prospects of the UK economy. In early trade this morning we saw the Euro trade at an eight month high against the Pound.

The other big news comes from Japan with the Pound at a 20 month high against the Yen on speculation the government will step up monetary easing to stimulate the economy. However technical studies seem to suggest that the Yen is overbought at current levels, suggesting that we may see a retracement of the current move.

With volumes expected to remain thin running up to the New Year, we could see some short term volatility. For US dollars buyers we suggest leaving Limit Orders to take advantage of any short term spikes from any positive news about the Fiscal Cliff. Euro buyers are suggested to look at their future requirements to hedge against any further falls using Forward Contracts and Yen buys are suggested to look at their future requirements also to lock in the 20 month high.

Key Announcements Today:

09.30am – GBP – BBA Mortgage Approvals (Nov): Expected to increase to 34.6k

13.30pm – USD – Initial Jobless Claims: Expected to increase to 365k.

15.00pm – USD – Consumer Confidence (Nov): Expected to decrease to 70.3.

15.00pm – USD – New Home Sales (Nov): Expected to increase to 0.378 million.