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ASIA/EUROPE FOREX NEWS WRAP

For the second day in a row, the Australian, Canadian, and New Zealand Dollars have remained resilient despite a sell-off in the European currencies and equity markets, perhaps a sign of improving global growth prospects despite uneasiness elsewhere. With European concerns lingering – once again after a “resolution” was reached, with leaders spinning it as a monumental moment for all European s – the Euro has taken the lion’s share of punishment the past two days, despite notable improvement in Italian and Spanish bond yields (see below).

Accentuating the uneasiness today were comments made yesterday by Senate Majority Leader Harry Reid, a pro-tax hike Democrat, who called the lack of progress made the past eleven days on the fiscal cliff/slope or so “discouraging.” This has perhaps aided the commodity currencies in their relative state of levitation (compared to the European currencies’ sinking feeling). But the big winner has been the Japanese Yen, which has rebounded off of its November lows across the board as investors seek safety outside of the US Dollar.

But this notion of the fiscal cliff/slope being a definite occurrence is far-fetched despite the “discouraging” lack of progress made. Where’s the real progress? Stringent anti-tax hike Republicans reneging on promises to never increase government revenues, as politicians backpedal away from the very policies that cost them the Presidency, the Senate, and a few seats in the House of Representatives. This sensibility being displayed gives hope that at least a bridge agreement will be made, to give the new Congress time to hammer out the details over the first half of the year.

Taking a look at European credit, peripheral bond yields have continued to deteriorate, decoupling further from weakness in the Euro and European equity markets. The Italian 2-year note yield has decreased to 1.912% (-2.1-bps) while the Spanish 2-year note yield has decreased to 2.724% (-11.6-bps). Similarly, the Italian 10-year note yield has decreased to 4.668% (-4.5-bps) while the Spanish 10-year note yield has decreased to 5.410% (-8.1-bps); lower yields imply higher prices.

RELATIVE PERFORMANCE (versus USD): 12:05 GMT

JPY: +0.33%

NZD: +0.07%

CAD:+0.01%

AUD:-0.04%

GBP:-0.22%

EUR: -0.26%

CHF:-0.36%

Dow Jones FXCM Dollar Index (Ticker: USDOLLAR): -0.44% (+0.06% past 5-days)

ECONOMIC CALENDAR

See the DailyFX Economic Calendar for a full list, timetable, and consensus forecasts for upcoming economic indicators.

TECHNICAL ANALYSIS OUTLOOK

EUR/USD: The pair has broken back below 1.2900, but my bias remains neutral, awaiting resolution of 1.3010/20 to the upside and 1.2800/40 to the downside. Below, support comes in at 1.2740/45. Above, resistance is 1.3140/45.