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S&P Downgrades US Rating From AAA Grade

A guest post written by DAR Wong

Currency Market Observations – 11 June 2012

Fundamental Outlook

The S&P rating agency downgrades US financial ranking from AAA to AA+ due to its resilient national debt. Both European Central Bank (ECB) and Bank of England (BOE) held its benchmark rates unchanged in last week’s meeting. China reduces 0.25 percentage points off its lending and deposit rates for the first time since 2008.

The US factory orders dropped 0.6 percent in April against positive forecast, after a revised 2.1 percent decrease in March. The Institute for Supply Management’s index services unexpectedly rose to 53.7 in May from April’s 53.5.

The initial jobless claims in US Labor Department fell by 12,000 to 377,000 in the week ended June 2 from a revised 389,000. Jobs and consumer demands are still on contraction with enlarging national debts. On August 5, S&P rating agency lowered US raking from AAA to AA+ grade in view of the record deficits not being properly focused by lawmakers for reduction.

Japan posted a smaller-than-expected current-account surplus in April in excess of the nation’s trade at JPY333.8 billion (USD4.2 billion). Last week, the yen currency was slightly dampened against USD for about 150 pips after Finance Minister claimed support from G7 countries for joint intervention if the yen has risen too high!

In Eurozone, a composite index based in both services and manufacturing industries slid to 46 in May from prior month 46.7, undermined by the deepening sovereign debts. Spanish ministers urged EU aid for lending banks in first plea for help. On Friday, Spain was downgraded by Fitch Ratings to within two steps of junk, which concluded the turmoil of recession has spread into at least 8 of the 17 euro-area economies.

Last week, ECB lawmakers remained the euro refinance rates unchanged at 0.5 percent. However, President Mario Draghi reiterated the readiness to act if euro continues to be deteriorated. The U.K. Monetary Policy Committee led by Governor Mervyn King also held its interest rates at record low 0.5 percent while keeping the ceiling for bond purchases at GBP325 billion (USD503 billion). Policymakers are worried of inflation risk over recession.

China cut borrowing costs for the first time since 2008 in an effort to fight slowdown from euro crisis. The one-year lending rate declines by a quarter percentage point to 6.31 percent while the one-year deposit rate drops the same amount to 3.25 percent. The rate cut dampened demands for general commodities on Friday.

Technical Forecast

USD/JPY recovered from recent low 77.65 to 79.79 last week after Azumi’s comments weakened yen value. This week, we foresee the resistance will emerge at 79.50 – 80.00 regions for profit-taking while support lies at 78.50 levels. The trend may probably trade sideways but selling from top range will be ideal if 80.00 resistances are guarded well.

EUR/USD has formed strong support at 1.2430 regions while topside resistance lies at 1.2630 levels. We expect the market to consolidate within this area but testing higher grounds at R2 – 1.2700 is possible if the technical recovery remains resilient in coming week. Abandon your long-view if the trend violates beneath 1.2400 supports.

GBP/USD has been caught between 1.5400 – 1.5600 regions in view of trend consolidation. Technically, we reckon strong support at 1.5350 – 1.5400 areas if a quick dip occurs in early week. We favor in focusing for long-entry while aiming for technical bullish sentiment towards the end of coming week. Abandon your long-view if the market settles below 1.5350 levels.

Dar Wong

This post is contributed by OPF Guest Blogger, DAR Wong.

Wong is the founder and Principal Consultant of and holds a professional
qualification in NASD series 3 and 5 approved by National Futures Association (USA).


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DISCLAIMER: This post is written for general information only. The author, publisher and/or any third party involved in the distribution of this work assume no legal responsibilities and shall have no liability whatsoever for any direct or consequential losses, costs or expenses arising from the use of the information contained herein.

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