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Wednesday, 30 Nov 2011
Fitch Warns on US Credit Rating
Citing a failure of the Congressional super committee to address the US deficit Fitch moved to change its outlook on US government debt to negative from stable.
USD - Fitch Warns on US Credit Rating
Yesterday Fitch warned on the US credit rating. Citing a failure of the Congressional super committee to address the US deficit Fitch moved to change its outlook on US government debt to negative from stable. Technically this means there is a chance of a ratings downgrade within the next two years. This puts Fitch on the same level with Moody's and one level above S&P who downgraded the US credit rating in August, igniting a storm in the financial markets.
The move by S&P to lower the AAA rating of the US fueled sharp declines in equity markets and a rush to safe haven assets such as US Treasuries and the USD. This scenario could happen again should Moody's or Fitch also cut the US credit rating. However, the 2-year window leaves ample opportunity for Congress and the President to tackle the deficit issue after the 2012 election. Any additional rating downgrade would likely weaken the USD in the medium-term, fueling additional declines in the USD.
SEK - Swedish Economy Rolls On
There is one bright spot in Europe and it is Sweden. The Swedish economy grew 4.6% y/y in Q3. Consensus expectations were for GDP growth of only 3.8%. This is up 1.6% when compared to Q2 GDP numbers. A 3% surge in exports helped support the strong economic data which took place during a rocky period for financial markets.
Investors had been hoping for a rate cut next month by the Riksbank but in light of the better data this will likely not happen. While the SEK may outperform in the near term the currency is ultimately subject to larger macroeconomic forces outside of Sweden. Yesterday's price action is a good example of this. The USD/SEK moved as low as 6.8590 where the pair found support at its previously broken trend line from the February 2009 high. A bounce higher will likely test the November 24th high of 7.0180, followed by the November 2010 high of 7.0700.
AUD - AUD Up on Improved Market Sentiment and Ratings Upgrade
The AUD has made an impressive move versus the USD with the pair climbing back above parity. The AUD initially gapped higher to start the week as traders responded positively to a potential EU deal to support the EFSF and additional European integration. Also supporting the high yielding currency yesterday was a ratings upgrade of the Australian foreign-currency rating by Fitch to AAA from AA+. Fitch cited low government debt levels and flexible governmental policies for its rating change.
The AUD/USD has climbed from 0.9660 to yesterday's high of 1.0075 where the pair ran into resistance at the 55-day and 20-day moving averages. A continuation of the move higher would likely find selling pressure at 1.0340 from the November 13th high. A close above the 1.0050 resistance from the November 10th low would support this view.
Crude Oil - US Economic Data Supporting Crude Oil Prices
Spot crude oil prices bounced higher along with US equities as better than expected US consumer confidence numbers helped to support higher yielding assets. The risk on trading was sparked by the CB consumer confidence index which climbed to 56 from a revised 40.9 reading in October. This was the largest monthly gain since 2003. Also boosting crude oil prices was strong demand for an Italian bond auction.
The trend of improving US economic data has become noticeable and may continue this week and today will have the ADP non-farm payrolls report. The data is often seen as a preview to Friday's jobs report but there doesn't seem to be any correlation between the two job numbers. Thursday will have the ISM manufacturing PMI and a strong survey could help to push crude oil prices back above the psychological $100 level. A sustained break here would likely find resistance at $103.30 from the November 17th high.
The EUR closed last week below the psychologically important 1.35 level and a close below it on the monthly chart will carry an even greater significance. Both monthly and weekly stochastics continue to fall and a break of 1.3210 will likely test the October low of 1.3145. Below here at 1.3040 there is the 61% Fibonacci retracement of the move from June 2010 to May2011 though this may only prove to be a mile marker in the new downtrend for the pair. Support is located at the January low of 1.2870. The November 18th high of 1.3610 stands out as resistance.
Falling monthly and weekly stochastics may have the GBP/USD testing the October low of 1.5270 as the pair is pulling within striking distance of its long term uptrend from the 2009 low which comes in at 1.5050. Any move higher will likely encounter heavy selling from the July pivot at 1.5780.
The downtrend for the USD/JPY remains firmly intact and only a break above 78.95 from the falling trend line from the 2007 high may reverse the pair's bearish technical sentiment. A break above this line may have the pair testing the most recent post-intervention high of 79.50, a level that coincides with the pair's 200-day moving average. To the downside the November 18th low of 76.55 is the initial support, followed by the all-time low of 75.56.
The USD/CHF is testing its October high at 0.9310 and a break here will likely open the door to the pair's 20-month moving average at 0.9460 and the February high of 0.9775. Initial support is located at the November 18th low of 0.9080 with a deeper move perhaps taking the pair to the November low of 0.8760.
The Wild Card
Yesterday the pair breached the rising support line from the November 10th low. This hints at a renewed test of 0.8485. Forex traders should note that the pair will initially need to overcome support from the mid-November lows of 0.8520. Resistance is found at the October 21st low of 0.8670.
|08:00||EUR||German Industrial Production||m/m||0.7%||-||-1.2%|
|08:01||JPY||BoJ Press Conference||-||-||-|
|08:45||EUR||French Trade Balance||-3.3B||-||-3.0B|
|09:00||CHF||Foreign Currency Reserves||540B||-||542B|
|10:30||GBP||Manufacturing Production m/m||m/m||-0.8%||0.4%||-|
|10:31||EUR||German 10-y Bond Auction||0.69|1.2||-||-|
|16:00||GBP||NIESR GDP Estimate||0.5%||-||-|
|16:30||USD||Crude Oil Inventories||4.0M||2.2M||-|
|19:01||USD||10-y Bond Auction||2.24|2.7||-||-|
|01:01||GBP||RICS House Price Balance||53%||54%||-|
|01:50||JPY||Core Machinery Orders||m/m||-3.6%||3.3%||-|
|05:45||JPY||30-y Bond Auction||1.41|3.1||-||-|
|07:00||JPY||BoJ Monthly Report||-||-||-|
|07:00||JPY||Economy Watchers Sentiment||49.3||48.6||-|