 | |  | | With only 2 more weeks to go before the end of the year, there still hasn’t been any major progress on the Fiscal Cliff talks. This weekend, there were reports that President Obama plans to reject a new proposal from House Speaker Boehner that some say involve a tax cut extension to all Americans earning $1,000,000 or less. Obama previously called this proposal unacceptable and his stance hasn’t changed. The clock is ticking and if a deal is not reached by this Friday, we could see a wave of deleveraging sweep over the market as traders and investors reduce their exposure and hedge their positions ahead of the holidays. The market tends to be extremely quiet between Christmas and New Years because many traders take the time off to spend with their families. If they want a peaceful vacation that does not involve checking their trading screens every day or every few hours, they will look to cut or hedge their positions this week. For the FX market, this should mean profit taking on long EUR/USD and USD/JPY positions as well as a general reduction in exposure to high beta currencies because if Congress allows the U.S. economy to fall off the cliff, we can expect broad based weakness in the FX market. While the U.S. is the main source of the uncertainty and problems, safe haven currencies such as the dollar and the Yen could be the best performers in the event that a deal is not sealed by the end of the year. |  |  |  |  |
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