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Trader Focus Remains on Fiscal Cliff Issue

By:
James Hyerczyk
Updated: Aug 21, 2015, 02:00 UTC

Volatility is expected to be highlighted today in the Forex and commodity markets as all eyes remain focused on U.S. fiscal cliff negotiations. Early in

Trader Focus Remains on Fiscal Cliff Issue

Volatility is expected to be highlighted today in the Forex and commodity markets as all eyes remain focused on U.S. fiscal cliff negotiations. Early in today’s trading session, the U.S. Dollar climbed to its highest level in two weeks before succumbing to speculative pressure. Nonetheless, global investors remain jittery ahead of today’s late afternoon meeting between President Obama and lawmakers. At stake is the possibility of more than $600 billion of tax increases and spending cuts which have the potential to drive the U.S. economy into a first quarter recession. 

Ahead of today’s meeting between political leaders, the EUR/USD was driven lower on the news that Italian borrowing costs increased at a debt sale. In addition, a report showed that the French economy grew less than initially estimated. These two news events were primarily overlooked by traders who instead chose to focus on the fiscal cliff.  

Technically, the EUR/USD drew support as it neared a main bottom near 1.3158 and an uptrending Gann angle at 1.3156. Breaking these levels will be clear signs that investor sentiment is turning bearish, setting up the market for an even further break to 1.3092. 

The stronger U.S. Dollar helped push the British Pound lower before selling pressure dried up and oversold conditions triggered a reversal to the upside. Technically, the main trend is up on the daily chart, conditions could change quickly throughout the session. Volume is light ahead of the week-end and next week’s New Year’s holiday, making the Sterling vulnerable to erratic swings. Support is trying to be established on a 50% level at 1.6066. There is room to the upside, however, with 1.6186 a potential target. 

Bullish gold traders appear to be optimistic that the fiscal cliff is likely to draw traders into the precious metals. Since bottoming at $1636.00 on December 20 near a Fibonacci price level at $1638.15, February gold has begun the process of building a support base between $1669.05 and $1638.15. 

Obvious to chart watchers, these two prices are potential breakout levels. This chart set-up also suggests that the move will be news driven. Furthermore, the longer gold remains inside of a tight range, the greater the likelihood of a volatile breakout. 

After slipping from a multi-week high on Thursday, February crude oil recovered today to post a small gain. Investors seem to be hedging the long side of the fiscal cliff debate in the crude oil market while pressuring currencies and indices. 

Technically, crude oil is straddling a 61.8% or Fibonacci price level at $91.16. This price is controlling the short-term direction of the market. On the downside, a move through $90.02 is likely to mean that sentiment is turning bearish. 

About the Author

James is a Florida-based technical analyst, market researcher, educator and trader with 35+ years of experience. He is an expert in the area of patterns, price and time analysis as it applies to futures, Forex, and stocks.

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