The FOMC has it’s first meeting since the election and last meeting before the New Year on Wednesday.
The tension for fiscal cliff negotiations is higher than ever as we come down to the final three weeks of 2012.
A Dying Dollar is a likely result whether or not Republicans or Democrats have their fiscal way.
As the possibility of another American recession increases, it is likely the White House will blame the Federal Reserve and the Federal Reserve will blame the White House. Not taking responsibility for their actions, they will likely continue down their current paths. The Fed will print more money, do more and more Quantitative Easing and the White House may continue to make unconstitutional policies, such as taxing the rich more (if the democrats bill is passed).
Speaking in regards of short-term actions, the Fed could add more QE very soon, possibly announcing it this Thursday. The October FOMC report made it clear that “a number of participants indicated that additional asset purchases would likely be appropriate next year after the conclusion of the maturity extension program”.
With the maturity extension program (Operation Twist) ending at “year-end” and the fiscal cliff confrontation at “year-end”, I think the Fed is going to feel obligated to announce something at this meeting that will ease the minds of the public.
Fiscal Cliff – Physical Cliff
The theory and idea of the fiscal cliff could manifest very soon into a physical disaster for the U.S. economy as a whole.
Tax increases and spending cuts are going to automatically come into place unless the two White House parties compromise on a solution. Sunday, President Barack Obama and House Speaker Boehner are going to meet for further discussions.
Also in the U.S., focus of the market place remains on the “fiscal cliff” tax increases and spending cuts that is fast approaching. President Obama and House Speaker Boehner did meet face-to-face on Sunday to discuss the matter.
Speaker Boehner recently said “”The president has adopted a deliberate strategy to slow-walk our economy right to the edge of the fiscal cliff.” With the two parties experiencing such hostility, some think there will be no compromise before the cliff. I tend to think there will be some sort of compromise, in the next 3 weeks we will know.
The Forex market will experience volatility with all these major future-shaping decisions being made. We know volatility is coming but we don’t know in which direction. That would be nice to know! The reason that bad news for the dollar doesn’t necessarily mean a decrease in the dollars value is risk aversion.
If risk aversion doesn’t take affect, the dollar could suffer major loses very quickly. Technical levels could also play a roll in it’s direction.
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