Japan is now in the spotlight as the voters walk to the polls for another election, providing Japan its seventh leader in just a span of six years. The ruling party is expected to be overrun by the Liberal Democratic Party, which faced a landslide loss in the 2009 elections. LDP leader Shinzo Abe is also expected to win the post he left years ago for health reasons.
US fiscal cliff talks continue between the US leaders. According to people familiar with the ongoing discussions, House Speaker Boehner has recently offered President Obama a tax rate hike for households earning more than one million dollar each year, in exchange for decreasing the cost for federal entitlements. The US leaders continue to with the discussion to avoid the activation in the coming month of more than $600 billion automatic tax hikes and spending cuts.
Stocks and Commodities
S&P 500 ended its six days of straight gains on Thursday as concerns for the US fiscal cliff resurfaced. S&P 500 fell more than 5 points further on Friday and it ended the week 1.80 percent lower at 1,413.58. Apple’s fall of nearly four percent hurt Nasdaq as well, with Nasdaq falling 0.70 percent and Dow declining almost 36 points or 0.27 percent.
Gold started the week in a slightly better shape, spending the first three days above the $1,700 level. It failed to climb to and above the $1,730/50 resistance and this led to another drop below this key level. The week ended at $1,695 and this paves the way for another test of $1,680s, and perhaps the November lows.
Oil has capped its fifth straight weekly gain as investors cheered the favorable manufacturing news out of China and the US. Oil closed 0.98 percent higher on Friday, and continues to be soaked in the middle of the 84.12/90.30 range.
EURUSD made a stellar comeback this week, erasing all of its losses in the prior week from the 1.2875 lows. The pair posted five straight gains, following the three-day fall last week. The pair pierced through the September highs on Friday and ended the week strongly – just 10 pips off the highs. Based on current developments, EURUSD is now on track to eliminate most or even all of the losses incurred this year, with next target being 1.3250 and as high as 2012’s high printed in February at 1.3485. Further upmove in the next two weeks could see a follow through in the first quarter of 2013.
USDJPY has had hefty gains since September, and so far there are no indications that bulls will take on a holiday in the coming weeks. From the 75.65 lows printed in 2011, the pair has come a long way and is now poised to breach the 2012 and 2011 highs, which come in at 84.17 and 85.52 respectively. The Japan elections and changes in BOJ policy in the near future would dictate the price action in the coming weeks and months.
GBPUSD finished the week with a 0.89 percent gain and 168-pip range, thanks to Dollar weakness and favorable UK economic numbers, particularly better-than-expected Claimant Count Change and Unemployment Rate. Buyers were successful in defending the key 1.6000 level, and this gave them the momentum to push through bears through 1.6100. The pair ended the week near the highs set in October, and the pair has to contend next with the twin peaks set in April and September at 1.6300, before proceeding to fresh territories.
After hesitating for two weeks, USDCHF has finally pulverized the 0.9213 low set in October. Bulls were unable to touch 0.9400, and this gave sellers the chance to drive prices down by 200 pips. The pair finished the week at 0.9174, well off the October 0.9213 lows, and is now set for a move towards the 0.9000 level.
The Week Ahead
In terms of economic data releases, the coming weeks will be back to normalcy, as the yearend approaches and after several weeks filled with high-level meetings and key reports.
Monday starts off relatively quiet except for the release of US Empire State Manufacturing Index, US TIC Long Term Purchases data, and speeches by ECB President Draghi and FOMC members Stein and Lacker.
On Tuesday, the releases will come in the form of New Zealand’s ANZ Business Confidence, Australia’s Monetary Policy Meeting Minutes, UK BOE’s Quarterly Bulletin, UK CPI, BOE Inflation Letter, and US Current Account data.
For Wednesday, there are releases, particularly New Zealand’s Current Account, Japan Trade Balance, Germany’s Ifo Business Climate, BOE MPC Meeting Minutes, and US Building Permits data.
Thursday is the busiest week with New Zealand GDP, Japan’s Monetary Policy Statement, BOJ Overnight Call Rate, BOJ press conference (the first since Sunday’s elections), Retail Sales data from UK and Canada, and US Unemployment Claims, Existing Home Sales, and Philly Fed Manufacturing Index.
For Friday, there are releases like BOJ Monthly Report, UK Current Account and Public Sector Net Borrowing, Canada’s CPI and GDP, and US Personal Income, Personal Spending, Durable Goods Orders, and revised University of Michigan Consumer Sentiment.