The EUR/USD pair fell during the session on Tuesday, but bounced in order to show signs of support at the 1.28 handle by the end of the session. In fact, the candle is a hammer, and this suggests that the pair is ready to bounce again. However, the US Presidential elections were going on during the session, and this of course can throw a monkey wrench into the whole situation.
The pair is currently bouncing back and forth between worrying about the situation in the European Union, and the elections in America. After this election, we will then begin to pay attention to the fiscal cliff situation, and what that could possibly mean to the economy of the United States. There is a good chance that if the Americans still have a split government, the country will fall “off the fiscal cliff.”
The most likely result is going to be gridlock, and if that is the case, we could see a run back to “risk off” in the markets. The result would be positive for the Dollar, but for all of the wrong reasons unfortunately.
When will it end?
I can tell you personally, as someone who lives in one of the most “important” counties in the country, anyone who thinks the country will be closer to unity is dreaming. Because of this, I think the fiscal cliff is becoming more and more likely, and we will not only see the currency markets reflect this reality, but the stock markets as well. This could be the start of a significant move in the Dollar. The real question is will it be able to pick a direction?
The next couple of weeks could be a repeat of the 2004 election, where there are lawsuits coming left and right or perhaps simple anger between Americans. I cannot possibly overstate how divided the country is at the moment. It is hard to believe that the issues will be gone on Wednesday.
With this in mind, expect plenty of extreme volatility over the next few months, and we should continue to have the same kind of whiplash we have had for so long now. It appears that between Greece, Spain, and the United States – nothing may have changed.