Financial Advisor

Daily Report: Dollar's Trades With a Relatively Firm Tone as Moody's and Fitch Affirm U.S. Top Rating

The greenback recovered from record low against the Swiss franc and traded with a relative firm undertone as rating agencies Moody’s and Fitch both affirmed their AAA credit ratings U.S., however, Moody’s Investors Service warned that downgrades were still possible if lawmakers fail to form effective debt reduction measures. After U.S. President Obama signed the bill to lift the country’s debt ceiling and cut spending cut, Moody’s published a statement and indicated that the outlook for the U.S. grade is now negative which signaled it is still possible for a downgrade in the next 12-18 months. The rating agencies also consider the amount of spending cut of US$2.4 trillion is not enough to catch up with the country’s debt (Moody’s suggest an amount of over US$ 4 trillion is needed) and the nation may still face the inevitable default. Swissy tumbled again yesterday and hit another record low of 0.7610 earlier today before recovering, offers are reported at 0.7700-10 and 0.7750 whilst bids are still tipped at 0.7600-10 with stops below there.

With the risk of U.S. default cleared (at least for the near term) and it is going to take times for the lawmakers to come up with measures to cut the nation’s spending, investors’ focus will now shift back to the eurozone debt crisis, recent rise in Italian bond yield started to put pressure on the euro and Spanish-German 10-year yield spread also hit a 400 basis points as a result of speculation that Spain is going to be next country to debt crisis contagion. Euro slipped to 1.4151 yesterday and is still under pressure. Some traders are awaiting the release of economic data from eurozone countries, including German and eurozone service PMI and eurozone retail sales. At the moment, bids are reported at 1.4150-60 with option barriers noted at 1.4150, 1.4100, 1.4050 and also 1.4000, on the upside, offers are tipped in the region of 1.4230-50 and mixture of offers and stops is located at 1.4280-90.

The greenback remained confined against the Japanese yen in narrow range on continued verbal intervention from Japanese officials, Economic Minister Yosano stated that yen’s rise is excessive, Finance Minister Noda supported the comment and both reiterated that the currency’s rally does not reflect economic fundamentals. Bank of Japan Governor Shirakawa joined the team and pointed out that the yen’s gains are negative for the Japan’s economy. We still heard some bids at 76.90-00 and intervention worries should limit downside, on the upside, offers remain at 77.40 and further out at 77.60-80 with stops only emerging above 78.10-20. Traders are awaiting Bank of Japan policy meeting and there are speculations that the central bank may ease policy by increasing asset-buying fund by 5-10 trillion yen as early as this week and the MOF may take this chance to intervene to sell yen.
The British pound is still trading on the defensive side after early release of soft UK manufacturing PMI data (below 50), speculation that Bank of England may expand the QEP in order to stimulate UK economy also seen pressuring the pound. Offers are tipped at 1.6300-10 and mixture of offers and stops is located at 1.6325-30 but better offers are expected around 1.6360-70, on the downside, still see more stops below 1.6220 and 1.6200 (large) with bids ahead of both levels.

EUR/CHF Daily Outlook

Daily Pivots: (S1) 1.0694; (P) 1.0950; (R1) 1.1079;
EUR/CHF's fall is still in progress and drops to new record low of 1.0794 so far today, breaking mentioned 100% projection of 1.2344 to 1.1404 from 1.1891 at 1.0951. Intraday bias remains on the downside and further fall should now be seen towards 161.8% projection at 1.0372 next. On the upside, above 1.0986 minor resistance will turn bias neutral and bring consolidations. But recovery is expected to be limited below 1.1404 support turned resistance and bring fall resumption.

In the bigger picture, whole down trend from 1.6827 (2007 high) is still in progress and in any case, medium term outlook will remain bearish as long as 1.2399 support turned resistance holds. Next target will be 161.8% projection of 1.8234 to 1.4391 from 1.6827 at 1.0609. Nevertheless, break of 1.2399 will be the first sign of bottoming and should bring stronger rebound to 1.3243 resistance for confirmation.


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