© Ulrich Leuchtmann
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I do not think it will last long. Perhaps, we have already seen the best part of it, especially on the FX side, where we saw a risk-on mood, with aussie and kiwi dollars gaining very much. This was something that I do not think will continue for a long time, because where the volatility is very low. Especially the FX market is more risk-prone compared to other markets which are less risk-prone. Therefore, the FX market has been ahead of other markets in terms of risk-on mood already for quite a while. Thus, I think there is a room for further risk-on.
You wrote that "The big political drama continues. In two months' time the political debate about the automatic spending cuts and about an increase of the debt ceiling is going to start all over again." Does it mean that we are going to see a continuous pressure on the U.S. Dollar during this period of time?
Yes, certainly. I think we will basically be in the same situation in two-month time as we were in December. Therefore, the uncertainty about what will happen to the spending cuts will come up then. This will be just the same picture: on the one side, probably risk-aversion will be relatively high at that point in time; on the other hand, certainly the situation with the Dollar does not have much upside potential apart from its safe haven status. Thus, something that we would see in couple of months again would limit today's effect, but this is also something that we have to prepare for in the near future.
Do you believe the Euro will manage to stay above 1.32 against the greenback throughout the first quarter?
I am not sure about that. I think there is a good chance that the Euro will dip a bit below this level and then will approach 1.30 area again, simply because there is a good chance that whatever the U.S. lawmakers would decide in two-month time it will be something that would dampen the effect of the fiscal cliff on the real economy. Therefore, in the first quarter we might see the U.S. growth, which may not be that spectacular, but not as bad as many have feared. Afterwards, I think everybody expects the U.S. to be able to grow with a quite good potential. Hence, if we are right with this assumption that the effect on the real economy is relatively shallow enough for the decision in two month time then, this is something which would again show significant growth, potential difference between the U.S. and Eurozone, which should support the U.S. Dollar and be able to create a new pressure on the Euro.
What is your short-term outlook for EUR/USD and for the end of the first quarter?
For the end of the first quarter I see EUR/USD around 1.30. In the short-term outlook, I do not think that EUR/USD will move significantly higher above 1.33 level this week and afterwards we might even see EUR/USD more close to 1.32 or 1.33.