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Tuesday, 19 Apr 2011

US Inaction on Financial Crisis Generates Outlook Downgrade by S&P

Standard and Poor's ratings agency shifted their assessment of US long-term debt from stable to negative yesterday, citing indecisiveness and inaction on the part of US policymakers. The statement has been commented on as overdue considering the stalemate which has developed in Washington, D.C., over the past two years. Investment portfolios will likely experience an adjustment this week which market participants will want to be on guard against.

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Economic News

USD - US Outlook Downgrade by S&P Creates Waves

In response to yesterday's downgrade of US long-term debt by S&P's ratings agency, the global stock market became frantic, undergoing a wild sell-off before calming down in later trading. The US dollar pared some of its recent gains against the euro and British pound, with the EUR reaching towards 1.4352 before easing back into its current price near 1.4230 at the start of Asian trading.

Standard and Poor's ratings agency shifted their assessment of US long-term debt from stable to negative yesterday, citing indecisiveness and inaction on the part of US policymakers. The statement has been commented on as overdue considering the stalemate which has developed in Washington, D.C., over the past two years. Investment portfolios will likely experience an adjustment this week which market participants will want to be on guard against.

The greenback's pairing against the euro was less affected by the ratings adjustment since the euro zone continues to struggle with its own debt concerns. Many reports on European financial struggles revolve around Spain and Portugal recently, yet Greece recently resurfaced as a growing problem that will need to address debt restructuring and general weakness. An anti-aid mentality spreading through Europe at the moment is also pushing many investors away from the euro zone and into safer assets.

Looking at today's economic calendar will likely drive most traders to focus on European trading, considering the slew of reports getting published this morning. Yet traders would be unwise to disregard the Building Permits and Housing Starts figures out of the American economy at 13:30 GMT today since the housing market could provide early hints on US investment levels and consumer sentiment heading into a week stricken by S&P's dire news.

EUR - Inflationary PMI Reports to Make or Break EUR Today

Served up concurrently with a penetrating ratings downgrade by S&P regarding its US debt outlook, the euro zone has been wracked by its own debt concerns which some were optimistically forecasting an end to last week. Greece's debt has resurfaced as a nagging worry in the euro zone as a debt restructuring appears necessary for the ailing Hellenic economy. Spain and Portugal also loom on the horizon with their own debt and employment ills.

The euro/dollar suffered its largest one-day drop since November yesterday, and plummeted against all of its main currency rivals. These persistent debt woes balanced against the debt outlook downgrade in the United States and actually generated more bearish sentiment for the EUR than the long-overdue S&P report had for the USD. This has helped push the euro negative despite global events elsewhere.

This morning's string of economic reports on France, Germany and the broader region regarding their respective manufacturing and services inflationary levels should help shore up much of the region's recent market movement. Positive reports could help put the EUR back into last week's bullish channel, whereas a continuation of negative data could assist in a trend reversal for the 17-nation common currency.

JPY - Yen Benefits from Investment Shift amid Global Debt Woes

The Japanese yen gained yesterday against almost all of its currency rivals as debt woes in the United States and Europe fostered an environment of heavy risk aversion, driving many investors into the safety of physical assets and low-yield currencies, like the yen. Despite Japanese reconstruction struggles, the island economy's currency has gained substantially from shifts into and out of carry trades, as well as the sudden risk averse environment in the market these past several trading days.

With today's economic calendar centered on European manufacturing and services inflation reports, most traders will be evaluating their portfolio stance in regards to euro zone debt and outlook. Over-exposure to European markets may be harmful in the short-run since risk aversion is making such investments appear unappealing to day traders. The yen may make solid gains this week as a result of this market mood.

Crude Oil - OPEC Commentary and Risk Aversion Support Oil above $110

The price of Crude Oil received support yesterday as the Secretary General for the Organization of Petroleum Exporting Countries' (OPEC) made remarks regarding the current supply of crude in the global market. The Secretary, Mr. Abdalla el-Badri, remarked that current supply levels are adequate and in line with OPEC forecasts and agreements.

Moreover, the Secretary cited how OPEC's production output is the same now as it was in December 2010 since no changes were deemed necessary in the organization's meetings over the past several months. The organization has only recently boosted shipments from alternative members to make up for the loss of Libya's production output. Overall output remained steady.

Oil prices reached beyond $110 a barrel yesterday following these statements, and following the turmoil in the global stock markets brought on by S&P's downgrade of its US long-term debt outlook. Market adjustments will likely drive many investors into physical assets over the next several days, helping to lift the price of commodities like oil and gold. Traders will want to keep an eye on such shifts in investment as risk aversion, ever present in today's market, will likely continue to support oil prices above $110.

Technical News


The EUR/USD has gone increasingly bearish yesterday, and currently stands at the 1.4230 level. The daily chart's Slow Stochastic supports this currency cross to fall further today. However, the 4-hour chart's RSI signals that a bullish reversal will take place today. Entering the pair when the signs are clearer seems to be the wise choice today.


The pair has been range-trading for a while now, with no specific direction. The Daily chart's Slow Stochastic providing us with mixed signals. All oscillators on the 4 hour chart do not provide a clear direction as well. Waiting for a clearer sign on the hourlies might be a good strategy today.


The pair has recorded much bearish behavior in the past several days. However, the technical data indicates that this trend may reverse anytime soon. For example, the daily chart's Stochastic Slow signals that a bullish reversal is imminent. An upward trend today is also supported by the 4-hour chart's RSI. Going long with tight stops may turn out to pay off today.


The 4-hour chart is showing mixed signals with its RSI fluctuating at the neutral territory. However, the daily Chart's RSI is already floating in the oversold territory indicating that a bullish correction might take place in the nearest future. Going long with tight stops might be the right strategy today.

The Wild Card


Gold prices rose significantly in the last week and peaked at $1497 for an ounce. However, the daily chart's RSI is floating in an overbought territory suggesting that a recent upwards trend is loosing steam and a bearish correction is impending. This might be a good opportunity for forex traders to enter the trend at a very early stage

Current Time: 03/01 23:41 GMT
# Time $€£¥ Event Per. Prev. Fore. Act. Imp.
23:30AUD+ MI Inflation Gauge m/m0.1%--1
23:50JPY+ Capital Spending q/q5.5%4.1%-1
00:00AUD+ HIA New Home Salesm/m-1.9%--1
00:30AUD+ Company Operating Profits q/q0.5%0.7%-3
01:35JPY+ Final Manufacturing PMI51.551.5-1
02:00EUR+ German Retail Salesm/m---3
05:30AUD+ Commodity Prices y/y-20.4%--1
07:00GBP+ Nationwide HPIm/m0.3%--3
08:15EUR+ Spanish Manufacturing PMI54.7--3
08:30CHF+ Manufacturing PMI48.2--1
08:45EUR+ Italian Manufacturing PMI49.9--3
09:00EUR+ Final Manufacturing PMI---1
09:00EUR+ Italian Monthly Unemployment Rate12.9%--1
09:00EUR+ Italian Quarterly Unemployment Rate12.8%--1
09:30GBP+ Manufacturing PMI53.0--5
09:30GBP+ Net Lending to Individuals m/m2.2B--3
09:30GBP+ M4 Money Supplym/m0.1%--1
09:30GBP+ Mortgage Approvals60K--1
10:00EUR+ CPI Flash Estimate y/y-0.6%--5
10:00EUR+ Core CPI y/y0.6%--3
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