Japan’s Liberal Democratic Party emerged as a landslide winner in last Sunday’s elections in Japan, with Shinzo Abe voted as the incoming Prime Minister, a position he held shortly a few years ago. LDP won around 294 seats out of the 480-seat parliament lower house. Abe is expected to implement “aggressive monetary easing,†a plan that he would likely push in the near future. Abe is also planning to augment the public-works spending in the nation.
US fiscal cliff talks continue between the US leaders. Markets are apprehensive that the American lawmakers would fail to reach a consensus as the years draws to a close. A year-end fiscal budget expiry, without the lawmakers’ intervention, would initiate $600 billion-worth of tax hikes and spending cuts which would affect most Americans.
Commodities
Gold started off Monday in a very tight trading session, but eventually the week precipitated into a decline of $42 and $36 on Tuesday and Thursday, respectively. The sharp drop blasted November’s lows and price headed towards the lower $1,600s. Further weakness could hurl price further down to the multi-year triple bottom in the $1,520s. Bulls must defend this level at all cost.
Oil made a stronger performance in the first four days of the week, clinching the coveted $90.00 level in the process. Price reached new highs, around $90.51, but the move received no follow-through from other buyers, prompting price to recede lower by more than $2 on Friday. Oil is still mired in a multi-month consolidation but buyers seem to be getting more aggressive. $93.50 is the next key target once $91.00 yields to the bulls.
Currencies
EURUSD started off Monday in quiet mode, before powering 160 pips higher mid-week and busting through 1.3300 and topping out at 1.3307. With the holidays in the horizon, bulls were unable to cement their control of this level, capping price on Wednesday and Thursday. Weakness and thinner liquidity led to further decline on Friday, with the pair closing the week just 18 pips higher from the weekly open. The pair is bullish but buyers would aim for a yearly close above the April’s high around 1.3270 to give the bulls a further boost during 2013’s start.
The inability of USDJPY to fill the gap created during the start of the week is a nervous premonition for bears. The LDP landslide win in last Sunday’s elections also added insult to injury. The week’s close was slightly lower than the open, but despite this the pair is undeniably in bullish territory with the weekly close boasting of being the highest since May 2011. The bulls are poised to break the long-term and wide range if they could rise above April 2011’s 85.52 high. This is the near-term target in the coming weeks.
GBPUSD was also bullish in the first three days of this week, printing a double top and stopping just 3 pips shy of touching September’s 1.6308 high. Bears took advantage of this weakness and drove price lower in one fell swoop on Friday, diving 130 pips with majority of the drop done in just 7 hours. With Friday’s trading, the week ended virtually unchanged. Price could drift much lower from here, but it is still in the court of the bulls unless the 1.6000/1.6200 yields.
The Week Ahead
The market is pretty much on holiday for the first three days of the coming week, hence traders could expect a light economic week ahead and into the new year.
On Wednesday, Bank of Japan would be out with its Monetary Policy Meeting Minutes. The United States will release Standard & Poor’s Case-Shiller House Price Index, which is expected to tick higher for the fifth straight month. The Fed’s Richmond Manufacturing Index is estimated to come in at 12, better than November’s reading.
There would be a bit more news on Thursday but the most notable ones comes from the US in the form of the Conference Board’s Consumer Confidence, Unemployment Claims, and New Home Sales.
For Friday, Japan will have a little spate of news releases such as Manufacturing PMI, Household Spending, CPI, Retail Sales, Unemployment Rate, and the preliminary reading of Industrial Production. Italy will announce the result of its 10-year bond auction. Meanwhile, the US will release US Pending Home Sales, Chicago PMI, Natural Gas Storage, and Crude Oil Inventories.
