The US has been the focus of events this week with both Obama’s reelection and Hurricane Sandy’s long term impact on the US Northeast.
President Barack Obama has been re-elected for his second term when Americans took to the voting precincts last November 6 to vote on the US Presidential, Senate, and House of Representatives elections. Obama defeated his Republican contender Mitt Romney.
The electoral tally showed Obama won 303 electoral votes, while challenger Mitt Romney earned 206 electoral votes. Meanwhile, Democrats retained control of the Senate, while the republicans hold control of House of Representatives. Obama will be inaugurated for his second term as President on January 21 next year.
In other news, the American Northeast is still suffering after Hurricane Sandy wreaked havoc the other week. Sandy caused flooding and devastated homes, businesses, and buildings, and left the majority without power, water, and phone service. Recent reports show as much as 100,000 businesses and homes will possibly endure a few months with no power until major restorations are facilitated. According to the US Energy Department, more than 400,000 homes and businesses, mostly in New Jersey and New York, still have no power. A nor’easter wind, rain, and snow storm followed recently which aggravated the situation and prevented utility crews from making repairs and power and utility restoration.
Markets Reaction to the Events
The week passed by without any unusual fuss as Obama’s re-election meant status quo for the markets. However, the key economic data released this week created significant volatility for the markets.
German bonds climbed for a third week on concerns that European slowdown is worsening and spreading to other European economies. UK gilts also rose for the third week on speculation that the Bank of England will increase bond purchases to continue spurring economic growth.
Asian, Europe, and US stocks fell as investors turn to concerns about an impending US ‘fiscal cliff’ as the yearend nears. Bush-imposed tax cuts will expire by December 31 and the "fiscal cliff" scenario heralds tax hikes and spending cuts, affecting Americans in the process.
The volatility led mainly by the US elections also affected oil, with price having spiked up and down by $5 total on election day and the next. Oil closed the week nearly $2 higher from the weekly open at $86.06. Meanwhile, the quick $42 drop last week did not prevent gold from making a comeback and ending the week in spectacular fashion. Gold traded higher for four consecutive days and closed the week at $1,730.
It was a week rich in volatility for the currency market, thanks to a raft of key economic data releases and the recently-concluded US elections.
After touching 80.67 the other week, USDJPY made a relentless move to the downside this week, taking out stops and stopping six pips short from breaking the 79.00 level. This pair is in a precarious situation and 79.00 should hold to prevent a collapse towards the 77.00 area.
Meanwhile, GBPUSD and EURUSD are also in dangerous territories as Dollar strength zapped the bulls to end the week. GBPUSD spent most of the week within a 50-pip range from 1.5950 and 1.6000. Attempts to breach each side were easily rebuffed, and the week closed by finally breaking this range to the downside, closing at 1.5893.
EURUSD is also in a terrible position after closing three consecutive days below the 200-day average. The pair made a brief foray to the upper-1.2600’s but closed the week at 1.2709.
Bucking the trend, AUDUSD held up relatively well this week. Compared to EURUSD and GBPUSD, this pair ended the week at a better price, and is still poised to move higher if 1.0300 does not give way to dollar strength.
The Week Ahead
The coming week is relatively average in terms of economic news, with most of the key economic data releases concentrated on Wednesday and Thursday. The market will be looking forward to the Eurogroup meetings on Monday; UK CPI and BOE Inflation Letter, and Germany’s ZEW Economic Sentiment on Tuesday; New Zealand’s Core Retail Sales, UK’s Claimant Count Change, BOE Inflation Report, and BOE Governor King’s speech; and US Retail Sales, PPI, FOMC Meeting Minutes on Wednesday; UK Retail Sales, US CPI, Unemployment Claims, Philly Fed Manufacturing Index, and Bernanke’s speech; and finally, US TIC Long-Term Purchase and Industrial Production on Friday.