We use a range of cookies to give you the best possible browsing experience. By continuing to use this website, you agree to our use of cookies.
You can learn more about our cookie policy here, or by following the link at the bottom of any page on our site.

Free Trading Guides
EUR/USD
Bullish
Oil - US Crude
Bearish
Wall Street
Mixed
Low
High
of clients are net long.
of clients are net short.
Long Short

Note: Low and High figures are for the trading day.

Data provided by
Gold
Bullish
GBP/USD
Bullish
Low
High
of clients are net long.
of clients are net short.
Long Short

Note: Low and High figures are for the trading day.

Data provided by
USD/JPY
Bullish
Low
High
of clients are net long.
of clients are net short.
Long Short

Note: Low and High figures are for the trading day.

Data provided by
More View more
FOREX: Confidence in US Dollar Assets Holds Up After Rating Cut

FOREX: Confidence in US Dollar Assets Holds Up After Rating Cut

2011-08-08 06:05:00
Ilya Spivak, Head Strategist, APAC
Share:

Talking Points

  • US Treasuries Rise After S&P Downgrade, 2-Yr Yield Hits Recode Low
  • European Central Bank Vows to “Actively” Implement Bond Purchases
  • G7 Pledges to Cooperate to Quell Unrest in “Disorderly” FX Markets

With little of note on the economic calendar, the markets are left to digest the impact of Friday’s Standard and Poor’s downgrade of the US sovereign credit rating. Traders appear to be interpreting the news in terms of its implications for already crumbling global economic growth expectations, with higher US borrowing costs as a result of the rating cut seen as yet another headwind facing the post-Great Recession recovery. Stocks tumbled in Asia, dragging the sentiment-sensitive Australian and New Zealand Dollars along for the ride. The Swiss Franc and Japanese Yen outperformed. S&P 500 stock index futures are pointing aggressively lower late into the overnight session, signaling more of the same ahead.

Perhaps most interestingly, the market is clearly signaling that the downgrade has not changed the role of US Treasuries as the go-to safe haven asset, with bonds across the spectrum of benchmark maturities trading higher and the corresponding yields on the decline. In fact, the yield on the 2-year note hit a record low at 0.252 percent. Meanwhile, the US Dollar gapped down at the open against most of its counterparts but has since strengthened, hardly giving any indication of a confidence crisis in assets benchmarked against the currency.

Looking forward, speculation about what may emerge from Tuesday’s Federal Reserve policy meeting may produce a bit of a bounce in risky assets as markets correct from oversold conditions. The news flow over the past several weeks has been undeniably disappointing, and interest rate futures positioning suggests traders are holding out hope for another stimulus effort (or at least a hint thereof). The first round of Italian and Spanish bonds purchases by the European Central Bank ought to reinforce this dynamic, narrowing periphery bond spreads and reducing perceived default risk in the near term, after the bank pledged to implement the program “actively” overnight. A G7 pledge to act on concert to stabilize “disorderly” currency markets is likely to help as well, at least in the near term.

Asia Session: What Happened

GMT

CCY

EVENT

ACT

EXP

PREV

23:01

GBP

Lloyds Employment Confidence (JUL)

-53

-

-50

23:50

JPY

Bank Lending Banks ex-Trust (JUL)

-0.6%

-

-0.6%

23:50

JPY

Bank Lending incl Trusts (YoY) (JUL)

-0.5%

-

-0.6%

23:50

JPY

Current Account Balance (YoY%) (JUN)

-50.2%

-40.1%

-51.7%

23:50

JPY

Current Account Total (JPY) (JUN)

527.B

652.8B

590.7B

23:50

JPY

Adjusted Current Account Total (JPY) (JUN)

922.8B

961.1B

391.0B

23:50

JPY

Trade Balance - BOP Basis (JPY) (JUN)

131.5B

113.1B

-772.7B

0:00

NZD

QV House Prices (YoY) (JUL)

-0.4%

-

-0.9%

1:30

AUD

ANZ Job Advertisements (MoM) (JUL)

-0.7%

-

3.8% (R+)

4:30

JPY

Bankruptcies (YoY) (JUL)

1.4%

-

1.5%

5:00

JPY

Eco Watchers Survey: Current (JUL)

52.6

50.0

49.6

5:00

JPY

Eco Watchers Survey: Outlook (JUL)

48.5

-

49.0

5:00

JPY

Bank of Japan Monthly Economic Report

-

-

-

Euro Session: What to Expect

GMT

CCY

EXP

PREV

IMPACT

5:45

CHF

Unemployment Rate (JUL)

2.8%

2.8%

Medium

5:45

CHF

Unemployment Rate s.a. (JUL)

3.0%

3.0%

Medium

6:30

AUD

Foreign Reserves (AUD) (JUL)

-

41.1B

Low

6:30

EUR

Bank of France Business Sentiment (JUL)

-

99

Low

8:30

EUR

Euro-Zone Sentix Investor Confidence (AUG)

3.4

5.3

Low

Critical Levels

CCY

SUPPORT

RESISTANCE

EURUSD

1.4125

1.4455

GBPUSD

1.6281

1.6507

For real time news and analysis, please visit http://www.dailyfx.com/real_time_news

To receive future articles by email, please contact Ilya at ispivak@dailyfx.com

DailyFX provides forex news and technical analysis on the trends that influence the global currency markets.

DISCLOSURES

News & Analysis at your fingertips.