EUR/USD Ending 2012 +2% Higher After All

Includes: ERO, EU, FXE, UDN, UUP
by: FXstreet

The EUR/USD opened 2012 below 1.30 with many doubts about Greece staying in the eurozone in 2013, but, we have reached the end of year and the pair is currently quoted higher by +2.07%, last at 1.3213. With most markets in the Asia-Pacific closed for the New Year's Eve holiday, EUR/USD is showing signs of weakness at the time of writing- now breaking below 1.3200 as U.S. "fiscal cliff" fears intensify.

It looks likely that the U.S. is going to end up falling down the "fiscal cliff," something that Fed Chairman Bernanke once feared not that long ago. The last chance for a deal to be reached will come Monday morning in Washington D.C., as political leaders meet once again in hopes of preventing another self-inflicted wound to the world's largest economy.

Lack of progress so far has certainly sparked USD buying interest across the board in thin holiday trading, enabling EUR/USD to sell-off from recent highs above 1.3230 to current session lows barely above 1.3190. The USD/JPY is now back trading above 86 from an earlier low of 85.65, last at 86.16. Risk appetite is definitely not at its best in the Asia-Pacific, despite the recently released final HSBC PMI figures for China which is the best data in 18 months, last at 51.5.

On the other hand, commodity prices are printing fresh session highs, with copper up almost +1% for the day so far, gold above $1660 and oil above $90, despite USD strength; the correlation used to be negative between USD and commodities. A higher USD is non-inflationary, while higher commodities are inflationary.

Markets will be mostly closed all over the world from this point until the start of the new year 2013 Wednesday in Asia-Pacific. Until then, the main risk event will come in the form of China's NBS manufacturing PMI due tomorrow at 01:00 GMT, expected to remain in expansion above 50.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it. I have no business relationship with any company whose stock is mentioned in this article.