Fitch Downgrades US Credit Rating: What Does This Mean for Investors?

Introduction

In a move that has sent shockwaves across the financial world, rating agency Fitch has downgraded the United States from AAA to AA+, causing a ripple effect in global markets. This downgrade, while not entirely unexpected, has put traders on edge and has already had significant implications on Asian markets. In this article, we’ll delve into the details of Fitch’s decision and its impact on different financial assets and regions. We’ll also explore the outlook for the upcoming sessions and discuss how central banks and key economic indicators might influence market sentiment.

Fitch Downgrades the US: Initial Market Reactions

As the New York market closed, the news of Fitch’s downgrade hit Asian markets hard, with opening rates in the negative territory. While the reaction has been relatively restrained so far, the downward trend in interest rates and stock futures, coupled with increased flows towards safe-haven currencies, suggests that further declines may be on the horizon once the Asian market resumes trading. Despite the Fitch report, US indices experienced a minor reprieve on the first trading day of the month, with the Dow up by 0.2%, the S&P down by 0.27%, and the Nasdaq down by 0.43%.

APAC Trading and Safe-Haven Assets

In the wake of the Fitch downgrade, the Japanese Yen (JPY) and the Swiss Franc (CHF) experienced increased buying in the foreign exchange market. On the other hand, the Australian dollar fell against the US dollar and other major currencies following the Reserve Bank of Australia’s decision to hold interest rates steady earlier in the day. Interestingly, safe-haven assets like gold saw a rise in prices, trading 0.6% higher than the previous day’s low, as investors sought refuge amidst the uncertainty.

Market Volatility and Key Data Releases

As the market braces for a potentially tumultuous period, it’s essential to keep an eye on key economic indicators and central bank actions. Before the highly-anticipated job numbers report later in the week, markets are expected to remain volatile. The Asian session, followed by the European session, is relatively calm in terms of macroeconomic data, but once the US session begins, things might become more intriguing. Investors will closely monitor Wall Street’s response to the Fitch downgrade, as well as critical data releases, such as the US Crude Oil Inventory numbers and the ADP Non-Farm Employment data.

What happened in the Asia Session?

The dollar index (DXY) surprisingly rebounded from its overnight lows despite Fitch’s downgrade of the US credit market and weaker-than-expected job vacancies data. These two data sets would typically have exerted more selling pressure on the DXY during the Asian session, but the currency managed to soar. This unexpected behavior might be attributed to other market factors at play.

What does it mean for the Europe & US Sessions?

As the European calendar remains relatively quiet, traders are keenly awaiting the ADP statistics during the US session. If the ADP Non-Farm Payrolls (NFPs) come in below expectations, the US dollar sell-off might gain momentum later in the day.

The Swiss Franc (CHF) in Focus

For CHF traders, the key news event to watch is the Manufacturing PMI. The USDCHF pair experienced a sharp decline from its high of 0.8780 to 0.8710 after Fitch’s downgrade. If the ADP NFPs show a “soft” reading, this pair could experience further downward movement in the afternoon.

Central Bank Notes: SNB’s Monetary Policy Forecast

The Swiss National Bank (SNB) has recently tightened its monetary policy further by raising the SNB policy rate by 0.25 percentage points to 1.75%. The bank forecasts average annual inflation of 2.2% for 2023 and 2024 and 2.1% for 2025. However, without the rate increase, inflation estimates would have been even higher. The SNB anticipates modest growth for the rest of the year, mainly due to subdued foreign demand, inflation’s impact on purchasing power, and stricter financial conditions. The GDP is projected to grow by approximately 1% this year, and the next SNB meeting is scheduled for 21st September 2023.

Gold (XAU) Outlook: ADP NFPs and Safe-Haven Demand

Gold prices experienced a spike to $1,950/oz earlier in the day due to the employment portion of the ISM PMI report and the “softer” JOLTS labor market data. As the market processes the impact of Fitch’s downgrade, gold’s price might close the gap before moving upwards. Additionally, if the ADP NFPs fall below expectations, this could further accelerate the US dollar sell-off and potentially boost gold prices.

Oil Prices and EIA Crude Oil Inventories

The API weekly crude oil stock experienced a significant decline of approximately 15 million barrels last week, far exceeding the predicted 900k outflow. This substantial reduction in inventory levels led to WTI crude oil prices rising above $82 per barrel for the first time since mid-April. Given the unexpected decrease in stocks, combined with the US dollar’s weakening due to Fitch’s downgrade of the US credit market, crude oil prices are expected to remain high.

Global Markets Snapshot

As the Asian market faced turbulence, Asian stock markets experienced declines. The Nikkei fell by 2.27%, the Shanghai Composite by 0.90%, the Hang Seng by 2.41%, and the ASX by 1.29%. European equities also faced downward pressure, with the DAX futures down by 1.26%, the CAC 40 by 1.27%, and the FTSE by 0.88%. Meanwhile, the US stock market saw mixed results, with the Dow Jones up by 0.20%, the S&P 500 down by 0.27%, and the Nasdaq 100 down by 0.43%.

Commodity Prices

Amidst the market volatility, various commodities experienced price movements. Gold climbed to $1986.85 (+0.41%), Silver rose to $24.45 (+0.54%), Brent Oil surged to $85.69 (+0.94%), and WTI Oil increased to $82.14 (+0.96%).

Key News and Data

Several important news and data releases are scheduled for the next 24 hours, including the NZD Employment Change (QoQ) (Q2), JPY Monetary Policy Meeting Minutes, USD ADP Nonfarm Employment Change (Jul), USD Crude Oil Inventories, and RUB Retail Sales (YoY) (Jun). These events may contribute to further market movements and shape investor sentiment.

GBPUSD

Exponential Moving Average

• EMA 5: The 5-day EMA stands at 1.2799, suggesting a Sell sentiment.
• EMA 20: The 20-day EMA displays 1.2836, reinforcing a Sell indication.
• EMA 50: With a value of 1.2855, the 50-day EMA aligns with a Sell recommendation.

Simple Moving Average

• SMA 5: The 5-day SMA shows 1.2785, indicating a Sell sentiment.
• SMA 20: The 20-day SMA records 1.2844, supporting a Sell stance.
• SMA 50: The 50-day SMA stands at 1.2922, signifying a Sell indication.

RSI (Relative Strength Index)

The RSI, calculated over a 14-day period, displays a reading of 40.10, suggesting a Neutral signal.

Stochastic Oscillator

The %K value of the Stochastic Oscillator suggests a Neutral condition.

Resistance And Support Levels

• Resistance: The resistance level is identified at 1.2803.
• Support: The support level is observed at 1.2745.

Summary And Trade Suggestions

Based on the technical analysis, GBP/USD presents a Sell outlook. Traders may consider entering a short position, considering the indicators, moving averages, and oscillators.

Trade Suggestion:

• Entry Point: 1.2707
• Take Profit: 1.2629
• Stop Loss: 1.2766

EURUSD

Exponential Moving Average

• EMA 5: The 5-day EMA stands at 1.0983, indicating a Sell signal.
• EMA 20: The 20-day EMA is at 1.1022, signalling a Sell sentiment.
• EMA 50: The 50-day EMA currently sits at 1.1043, suggesting a Sell indication.

Simple Moving Average

• SMA 5: The 5-day SMA shows a value of 1.0978, reinforcing the Buy recommendation.
• SMA 20: With a value of 1.1021, the 20-day SMA also supports a Sell sentiment.
• SMA 50: The 50-day SMA registers at 1.1102, affirming a Sell indication.

RSI (Relative Strength Index)

The RSI, calculated over a 14-day period, stands at 38.91, signifying a negative signal.

Stochastic Oscillator

The %K value of the Stochastic Oscillator suggests a Neutral stance.

Resistance And Support Levels

• Resistance: The resistance level is observed at 1.0993.
• Support: The support level is identified at 1.0943.

Summary And Trade Suggestions

In summary, the technical analysis of EURUSD points towards a Sell sentiment. Considering the indicators, moving averages, and oscillators, it seems favourable for traders to enter a short position.

Trade Suggestion:

• Entry Point: 1.0933
• Take Profit: 1.0862
• Stop Loss: 1.0988

AUDUSD

Exponential Moving Average

• EMA 5: The 5-day EMA stands at 0.6609, indicating a Sell signal.
• EMA 20: The 20-day EMA is at 0.6679, signalling a Sell sentiment.
• EMA 50: The 50-day EMA currently sits at 0.6714, suggesting a Sell indication.

Simple Moving Average

• SMA 5: The 5-day SMA shows a value of 0.6611, reinforcing the Sell recommendation.
• SMA 20: With a value of 0.6699, the 20-day SMA also supports a Sell sentiment.
• SMA 50: The 50-day SMA registers at 0.6749, affirming a Sell indication.

RSI (Relative Strength Index)

The RSI, calculated over a 14-day period, stands at 33.09, signifying a Bearish signal.

Stochastic Oscillator

The %K value of the Stochastic Oscillator suggests a Negative stance.

Resistance And Support Levels

• Resistance: The resistance level is observed at 0.6624.
• Support: The support level is identified at 0.6573.

Summary And Trade Suggestions

In summary, the technical analysis of AUDUSD points towards a Sell sentiment. Considering the indicators, moving averages, and oscillators, it seems favourable for traders to enter a short position.

Trade Suggestion:

• Entry Point: 0.6543
• Take Profit: 0.6488
• Stop Loss: 0.6589

USDJPY

Exponential Moving Average

• EMA 5: The 5-day EMA stands at 142.73, indicating a Buy signal.
• EMA 20: The 20-day EMA is at 141.62, signalling a Buy sentiment.
• EMA 50: The 50-day EMA currently sits at 141.15, suggesting a Buy indication.

Simple Moving Average

• SMA 5: The 5-day SMA shows a value of 142.97, reinforcing the Sell recommendation.
• SMA 20: With a value of 141.30, the 20-day SMA also supports a Buy sentiment.
• SMA 50: The 50-day SMA registers at 140.23, affirming a Buy indication.

RSI (Relative Strength Index)

The RSI, calculated over a 14-day period, stands at 60.32, signifying a Buy signal.

Stochastic Oscillator

The %K value of the Stochastic Oscillator suggests a Neutral stance.

Resistance And Support Levels

• Resistance: The resistance level is observed at 143.48.
• Support: The support level is identified at 142.19.

Summary And Trade Suggestions

In summary, the technical analysis of USDJPY points towards a Buy sentiment. Considering the indicators, moving averages, and oscillators, it seems favourable for traders to enter a long position.

Trade Suggestion:

• Entry Point: 143.83
• Take Profit: 145.04
• Stop Loss: 143.01

FTSE 100

Exponential Moving Average

• EMA 5: The 5-day EMA stands at 7621.71, indicating a Sell signal.
• EMA 20: The 20-day EMA is at 7646.53, signalling a Sell sentiment.
• EMA 50: The 50-day EMA currently sits at 7593.13, suggesting a Sell indication.

Simple Moving Average

• SMA 5: The 5-day SMA shows a value of 7640.42, reinforcing the Sell recommendation.
• SMA 20: With a value of 7699.18, the 20-day SMA also supports a Sell sentiment.
• SMA 50: The 50-day SMA registers at 7557.00, affirming a Sell indication.

RSI (Relative Strength Index)

The RSI, calculated over a 14-day period, stands at 36.95, signifying a negative signal.

Stochastic Oscillator

The %K value of the Stochastic Oscillator suggests a Negative stance.

Resistance And Support Levels

• Resistance: The resistance level is observed at 7588.2.
• Support: The support level is identified at 7547.6.

Summary And Trade Suggestions

In summary, the technical analysis of FTSE 100 points towards a Sell sentiment. Considering the indicators, moving averages, and oscillators, it seems favourable for traders to enter a short position.

Trade Suggestion:

• Entry Point: 7522.9
• Take Profit: 7452.3
• Stop Loss: 7581.1

BRENT CRUDE OIL

Exponential Moving Average

• EMA 5: The 5-day EMA stands at 85.21, indicating a Buy signal.
• EMA 20: The 20-day EMA is at 83.84, signalling a Buy sentiment.
• EMA 50: The 50-day EMA currently sits at 81.64, suggesting a Buy indication.

Simple Moving Average

• SMA 5: The 5-day SMA shows a value of 85.23, reinforcing the Buy recommendation.
• SMA 20: With a value of 83.84, the 20-day SMA also supports a Buy sentiment.
• SMA 50: The 50-day SMA registers at 81.39, affirming a Buy indication.

RSI (Relative Strength Index)

The RSI, calculated over a 14-day period, stands at 69.46, signifying a Buy signal.

Stochastic Oscillator

The %K value of the Stochastic Oscillator suggests a Neutral stance.

Resistance And Support Levels

• Resistance: The resistance level is observed at 85.96.
• Support: The support level is identified at 84.44.

Summary And Trade Suggestions

In summary, the technical analysis of Brent Crude Oil points towards a Buy sentiment. Considering the indicators, moving averages, and oscillators, it seems favourable for traders to enter a long position.

Trade Suggestion:

• Entry Point: 87.25
• Take Profit: 89.61
• Stop Loss: 85.47

SILVER

Exponential Moving Average

• EMA 5: The 5-day EMA stands at 24.34, indicating a Sell signal.
• EMA 20: The 20-day EMA is at 24.44, signalling a Sell sentiment.
• EMA 50: The 50-day EMA currently sits at 24.31, suggesting a Buy indication.

Simple Moving Average

• SMA 5: The 5-day SMA shows a value of 24.34, reinforcing the Sell recommendation.
• SMA 20: With a value of 24.48, the 20-day SMA also supports a Sell sentiment.
• SMA 50: The 50-day SMA registers at 24.49, affirming a Sell indication.

RSI (Relative Strength Index)

The RSI, calculated over a 14-day period, stands at 44.45, signifying a Neutral signal.

Stochastic Oscillator

The %K value of the Stochastic Oscillator suggests a Neutral stance.

Resistance And Support Levels

• Resistance: The resistance level is observed at 24.65.
• Support: The support level is identified at 24.30.

Summary And Trade Suggestions

In summary, the technical analysis of silver points towards a Sell sentiment. Considering the indicators, moving averages, and oscillators, it seems favourable for traders to enter a short position.

Trade Suggestion:

• Entry Point: 24.13
• Take Profit: 23.54
• Stop Loss: 24.62

LITECOIN

Exponential Moving Average

• EMA 5: The 5-day EMA stands at 91.67, indicating a Sell signal.
• EMA 20: The 20-day EMA is at 91.90, signalling a Sell sentiment.
• EMA 50: The 50-day EMA currently sits at 92.48, suggesting a Sell indication.

Simple Moving Average

• SMA 5: The 5-day SMA shows a value of 91.34, reinforcing the Sell recommendation.
• SMA 20: With a value of 91.92, the 20-day SMA also supports a Sell sentiment.
• SMA 50: The 50-day SMA registers at 91.99, affirming a Sell indication.

RSI (Relative Strength Index)

The RSI, calculated over a 14-day period, stands at 45.10, signifying a Neutral signal.

Stochastic Oscillator

The %K value of the Stochastic Oscillator suggests a Positive stance.

Resistance And Support Levels

• Resistance: The resistance level is observed at 92.00.
• Support: The support level is identified at 90.65.

Summary And Trade Suggestions

In summary, the technical analysis of Litecoin points towards a Sell sentiment. Considering the indicators, moving averages, and oscillators, it seems favourable for traders to enter a short position.

Trade Suggestion:

• Entry Point: 89.73
• Take Profit: 87.70
• Stop Loss: 91.33

Conclusion

In conclusion, the technical analysis of the mentioned forex pairs and commodities provides valuable insights for traders. Each asset has a specific sentiment and corresponding trade suggestions. Traders should consider these indicators, moving averages, and oscillators when making trading decisions to capitalize on potential opportunities in the dynamic forex market.