US downgraded by Fitch

The USD seemed to edge a bit higher yesterday against its counterparts, yet at the same time there seems to hesitate causing it to stabilise somewhat. Fundamentals for the greenback include an unexpected downgrade of the US by Fitch, as the rating agency stripped the US from its perfect triple A rating and downgraded it to AA+. The main reason sighted for the decision was the expectation of a difficult fiscal expansion ahead as the US Government, due to the high US debt and debt ceiling rules after the agreement reached with Congress raising some degree of uncertainty. The US Government strongly disagreed with the rating agency’s decision and stated that the decision to downgrade the US “defies reality to downgrade the United States at a moment when President Biden has delivered the strongest recovery of any major economy in the world,“. Fitch is the second credit rating agency downgrading the US after Standard & Poor’s for the same reason. The news tended to raise US Bond yields and cause the USD to wobble, yet for the time being we expect the overall effect to be temporary. Also we note that the USD bulls may have hesitated due to the ISM manufacturing PMI figure for July which improved yet not as much as the market expected.

On a technical level we note that the USD edged lower against the JPY after hitting a ceiling on the 143.35 (R1) resistance line. Given that the upward trendline guiding the pair was broken we switch our bullish outlook in favour, initially, for a sideways motion bias. The RSI indicator is slowly but steadily edging lower, nearing the reading of 50, implying that the bullish sentiment of the market for the pair is fading away. Should the bears take over, we may see the pair breaking the 141.90 (S1) support line, with the next possible target for the bears being set at the 140.80 (S2) support level. Should the bulls take over once again, we may see USD/JPY reversing its losses and breaking the 143.35 (R1) line aiming for the 145.10 (R2) resistance base.  

Across the world we note that the Aussie continued to lose ground as market expectations that RBA has reached the terminal rate and is to have an extended pause if not end its rate hiking cycle seem to be cemented. On the other hand, though that could also benefit growth in the Australian economy as the interest rate stabilises, despite being at relatively high levels. On more fundamental level, we note that China’s recovery seems to be facing headwinds as both the NBS and Caixin manufacturing PMI figures showed a contraction of economic activity for July. Given that Australia exports a high amount of raw materials to China, we highlight tomorrow the release of Australia’s trade data for June.

AUD/USD intensified its drop yesterday breaking the 0.6620 (R1) support line, now turned to resistance. Given that the R1 allready actively provided resistance to a resurgence of the pair’s price action we tend to switch our outlook in favour of a bearish outlook for the pair. The RSI indicator runs along the reading of 30, implying a continuance of the market’s bearish sentiment and supporting the idea of a bearish outlook. Should the selling interest be extended, we may see AUD/USD aiming if not breaking the 0.6545 (S1) support line and taking aim of the 0.6460 (S2) support barrier. On the flip side, should buyers be set in charge of the pair’s direction, we may see AUD/USD breaking the downward trendline in a sign of an interruption of its downward movement, breaking the 0.6620 (R1) resistance line and aiming for the 0.6725 (R2) hurdle.

Other highlights for the day:

In today’s European session, we note the release of Switzerland’s manufacturing PMI figure for July and in the American session we get the US ADP national employment figure for July, while oil traders may be more interested in the release of the weekly EIA crude oil inventories figure. During tomorrow’s Asian session, we note the release of Australia’s and Japan’s final Services PMI figures for July, China’s Caixin services PMI figure for July, Australia’s retail trade growth rate for Q2.      

USD/JPY H4 Chart

Support: 141.90 (S1), 140.80 (S2), 139.15 (S3)

Resistance: 143.35 (R1), 145.10 (R2), 146.80 (R3)

AUD/USD H4 Chart

Support: 0.6545 (S1), 0.6460 (S2), 0.6385 (S3)

Resistance: 0.6620 (R1), 0.6725 (R2), 0.6810 (R3)

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