Fitch Ratings revised down its outlook on UK’s AAA rating from stable to negative. Fitch said “The decision reflects the very limited fiscal space to absorb further economic shocks in light of such elevated debt levels and a potentially weaker than currently forecast economic recovery” in a statement late yesterday. The credit warning from Fitch Ratings echoes a similar warning from Moody’s Investors Service, which said last month that Britain risks losing its top-level credit rating if the economy deteriorates. Recent surveys show that Britain’s economy may return to growth in the current quarter after a contraction in the last quarter of 2011.
British Treasury Minister Danny Alexander said “This is a salutary reminder as to why Britain needs to deal with the enormous debts and deficit that we inherited, why we have got to stick to those plans. And it should be a wake-up call to anyone who thinks we can afford as a country to loosen the purse strings. We can’t afford to do that, and that is why there will be no unfunded giveaways in next week’s budget”.
Meanwhile the markets continue to react to Fed’s statement. The Federal Open Market Committee had kept the benchmark interest rate target unchanged at zero to 0.25%. The central bank also expects moderate economic growth and predicts that the unemployment rate will decline gradually. The FOMC also decided to continue its program to extend the average maturity of its holdings of securities as announced in September. EUR/USD has been falling since Fed dampened hopes further monetary stimulus. All of the data we are seeing suggests the overall economy and customer sentiment are improving. This is definitely improving the mood of investors and forcing them to focus on taking more risk to capture what looks to be an improving outlook.
Today the Asian stock markets opened higher as the increasing optimism about the U.S. economy boosted the market sentiment. NIKKEI started the day at 10,115.40, previous close was 10,050.52. HANG SENG opened at 21,323.06, previous close was 21,307.89. CEO of Investrust, Hiroyuki Fukunaga said “You could look at certain technical indicators and say that the market is overheated but now is not really the time to be looking at such charts … The market is moving in tandem with the weaker yen and the stronger dollar is backed up by the improvement in the U.S. economy”.
EUR/USD is trading at 1.3031 by the time of typing and for today resistances are located at 1.3077 and 1.3157. Support levels are 1.3000 and 1.2950.
GBP/USD is at 1.5649. Resistance levels are located at 1.5687 and 1.5729. Supports are located at 1.5633 and 1.5570.
USD/CHF is trading at 0.9309 by the time of typing and for today resistances are located at 0.9348 and 0.9380. Support levels are 0.9250 and 0.9200.
AUD/USD is trading at 1.0460. Resistances are located at 1.0490 and 1.0550. Support levels are 1.0400 and 1.0349.
The economic calendar is heavy today and these data releases can cause high impact on the forex market especially when the pairs are around their important s/r levels. Swiss National Bank policy assessment and libor rate will be announced at 08:30 GMT. US Producer Price Index, Empire State Manufacturing Index and Unemployment Claims reports will be released at 12:30 GMT. TIC Long-Term Purchases data will be released at 13:00 GMT. Philadelphia Fed Manufacturing Index figures will be released at 13:30 GMT.