Technical Analysis: EUR/USD, GBP/USD, USD/JPY, and USD/CAD
ICM Brokers | Dec 06, 2011 08:15AM ET
EUR/USD
Standard & Poor’s said Germany and France may be stripped of their AAA credit ratings as the debt crisis prompts 15 euro nations to be put on review for possible downgrade. The euro area’s six AAA rated countries are among the nations to be placed on a negative outlook, and their credit ratings may be cut depending on the result of a summit of European Union leaders on Dec. 9, S&P said today in a statement. The euro reversed its gains and U.S. Treasuries rose earlier today after the Financial Times reported that the credit-ranking firm planned to reduce six AAA outlooks.“Systemic stress in the euro zone has risen in recent weeks and reached such a level that a review of all euro zone sovereign ratings is warranted,” S&P said in a statement. The downgrade warnings come as German Chancellor Angela Merkel and French President Nicolas Sarkozy push for a rewrite of the EU’s governing rules to tighten economic cooperation in a demonstration of unity on ending the debt crisis. With the fate of the currency shared by the 17 euro countries at risk, Merkel and Sarkozy presented a common platform for a Dec. 8-9 summit of EU leaders in Brussels that aims to halt the crisis now in its third year.“The S&P move is yet another signal that euro area countries must take decisive action to deal with the crisis or else the problems will spread from Greece and others with the most acute fiscal problems to the rest of the euro zone,” said Phillip Swagel, a professor of economics at the University of Maryland’s School of Public Policy who was an assistant secretary for economic policy in the George W. Bush administration. “It is time for Germany and France to act -- either to save Greece and the others or to let them fail.”
GBP/USD
U.K. stocks advanced, extending the biggest weekly increase in almost three years, as Italian Prime Minister Mario Monti introduced a debt-reduction plan and Germany and France pushed for closer economic cooperation. Lloyds Banking Group Plc and Barclays Plc led gains among lenders. Aberdeen Asset Management Plc rallied 3.8 percent as profit increased. Michael Page International Plc plunged 5.2 percent after saying full-year earnings will miss analysts’estimates.The benchmark FTSE 100 Index gained 15.67, or 0.3 percent, to 5,567.96 at the close in London. The benchmark gauge last week posted its biggest increase since January 2009, as the U.S. unemployment rate fell and Germany and France pushed for greater fiscal union in the euro area. The FTSE All-Share Index added 0.3 percent today, while Ireland’s ISEQ Index increased 1.6 percent. “Markets are gaining ground as investors acknowledge reports out of Italy surrounding tough new austerity measures, “Harley Salt, head of sales trading at IG Markets in London, wrote in a note. Monti presented the debt-reduction plan to the Chamber of Deputies in Rome today after his Cabinet approved the package yesterday. The measures include more than 12 billion Euros ($16 billion) in spending cuts, will force workers to delay retirement, resurrect a tax on first homes, crack down on tax evasion and aim to open up closed professions.
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USD/JPY
Derivatives traders are pushing back bets on when the Bank of Japan will raise interest rates as stagnant consumer prices and the strong yen continue to weigh on economic growth. Overnight-index swap rates for two years, an indication of what traders expect central bank rates will average during the period, are near the 0.04 percent record low set on Dec. 1.The three-year rate is 0.064, compared with 0.115 percent six months ago and below the 0.1 percent upper limit of the BOJ’s target rate. Similar rates signal the Federal Reserve will start to increase borrowing costs after two years. The BOJ in October cut its forecasts for inflation and growth rates next year, citing a slowdown in overseas economies and the yen’s gain. The country’s bond yields are set for a second yearly drop, as Prime Minister Yoshihiko Noda presses for tax increases to counteract rising pension costs and to finance rebuilding from the record earthquake in March.“Expectations for a rate hike barely grow because Japan is in deflation,” said Masaru Hamasaki, Tokyo-based chief strategist at Toyota Asset Management Co., which manages the equivalent of $24 billion, including Japanese and global government bonds. “Policies by the central bank and government aren’t doing anything to change investor perception that deflation is here to stay.”The BOJ’s benchmark interest rate range of zero to 0.1 percent is among the lowest in the world and hasn’t been above 0.5 percent since 1995. The central bank, due to release its next policy decision on Dec. 21, in October boosted the size of a program that buys government bonds, corporate debt and stock funds by 33 percent to 20 trillion yen ($256 billion).
USD/CAD
Canada’s dollar pared gains versus its U.S. counterpart as Standard & Poor’s said it put 15 euro zone countries on watch for a possible credit-rating downgrade, citing a tightening of credit conditions. The Canadian currency strengthened earlier as investors sought riskier assets amid bets European leaders would make progress finding a solution to the region’s debt crisis. German Chancellor Angela Merkel and French President Nicolas Sarkozy pushed for a rewrite of the European Union’s governing treaties to tighten economic cooperation. The Bank of Canada likely keep interest rates unchanged tomorrow, a Bloomberg survey showed. “It’s going to be a disappointing day for the Canada bulls going into the Bank of Canada tomorrow,” said Steve Butler , managing director of foreign-exchange trading in Toronto at Bank of Nova Scotia’s Scotia Capital unit. “All these rumors about S&P have taken a big shine off the markets this afternoon.” The loonie, as Canada’s currency is known for the image of the aquatic bird on the C$1 coin, appreciated 0.3 percent to C$1.0165 per U.S. dollar at 5 p.m. in Toronto. Earlier it gained as much as 0.7 percent. One Canadian dollar buys 98.39 U.S. cents. Canada’s dollar strengthened 2.7 percent last week, the most since the five days ended Oct. 14. The Canadian dollar gained 0.2 percent versus the euro to C$1.3623.
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