It is turning into a two-way market as traders look to the USD and JPY to guide them through the early part of December.
The ‘fiscal cliff’ situation is turning into a Eurozone-type affair. Not so much in the negative impact just yet, but more the uncertainty of the outcome. There appears to be an underlying sentiment that an agreement on taxes will be reached, but there is little certainty on when. A recent proposal by President Obama was turned down and there is no doubt that the solution will need to be co-ordinated by both sides. However, the USD will begin to move in a RORO trend as investors turn to the US currency and then away from it.
The Japanese Yen is in a similar position. As it stands, a form of intervention or weakening of the Yen is required to rescue the struggling economy. Presidential frontrunner, Abe, began by talking of his aggressive policies to weaken the Yen, allowing inflation to move to up to 3% and introduce negative interest rates. Recent comments have seen him retract this position, now claiming that he will leave the BoJ to handle what should be its affairs.
December will be an interesting month, particularly with the Eurozone bubbling. (JKM)