Markets Stay In Range After Initial Volatility

After some initial volatility, the forex markets are generally still stuck in tight range this week so far. Negotiation on resolving the fiscal cliff remained a deadlock although House of Speaker Boehner said that talks were ongoing during the week between the White House and the Republicans. However it seems that both sides refused to surrender some ground so as to get the deal done.

The GOP said that it's awaiting a Democrat counter proposal to its rejected $2.2 trillion plan. President Obama stated that it is essential to implement a package that "keeps taxes where they are for middle-class families." He stressed that he would not compromise on the principle that "the wealthiest Americans" should pay "a slightly higher tax rate."

In Italy, prime minister Monti said that market reaction to his resignation will be "contained." He urged that investors "shouldn't fear any decision-making void." He also emphasized that reactions "need not be dramatized" and he's "very confident that Italian elections, when they come, will give room to a coalition or government that will be in my view a highly responsible, EU- oriented government, which will be in line with the huge efforts already pursued by Italy." Due to pressure from his coalition government, Monti said he would resign after 2013 budget is approved by the parliament. Interior minister Cancellieri said yesterday that elections may be held on either February 17 or 24.

In UK, BoE Governor King said that 2013 could be a challenging year in which a number of countries might try to "push down their exchange rates." King said that G20 has gone backward since 2009 agreement on stimulus and "there has been no agreement on the need for working together to achieve some element of rebalancing the world economy." And he warned of growth of "actively managed exchange rates as an alternative to the use of domestic monetary policy."

Regarding the UK, King said "a reasonable central view would mean that we would expect to see some pick up in lending and investment, we would expect to see the squeeze on consumer spending ease somewhat." King also expressed his confidence that his successor, current BoC chief Carney, will "do a great job."

On the data front, UK RICS house price balanced dropped back to -9 in November. Australian NAB business confidence dropped to -9 in November. German ZEW will be the main focus today and the economic sentiment gauge is expected to improve to -11.5 in December. US and Canada will release trade balance later today.