EUR/USD (1.4325) S&P downgraded the US credit rating one notch late on Friday, launching a financial press frenzy about an inevitable market crash on Monday. US Treasury Secretary Timothy Geithner said that S&P showed terrible judgement and has handled themselves very poorly. However, from a psychological standpoint the ratings agency couldn’t have timed the statement any more correctly. To issue the downgrade before the budget-ceiling vote would have been unfair, and by doing so at the weekend gave market participants a chance to collect their wits. Given that panic is a collective loss of control, the various commentators who had been predicting a Bloody Monday were in fact gaining a sense of control – hence, contradicting themselves. As proof that a panic cannot be foretold, Asia opened up this morning to orderly markets; the safe-haven assets are trading higher, but not drastically so. Nevertheless, it was good for traders to know that the ECB and the G7 are prepared to act, if necessary – the former with bond purchases, the latter with a coordinated intervention – on the renewed slump in the eurozone credit markets.
The BoJ and the SNB are no doubt relieved this morning, given the support implied by the G7, the yen and the Swiss franc may be allowed to revalue. The widely feared sell-off of US dollars is absent so far and, against the euro, the greenback is little changed. The single-currency remains stable above 1.4050, and its gains would accelerate once it crests the 1.4550 hurdle.
Market Bias Index
Despite this weekend’s developments the Market Bias Index is scarcely changed. The euro’s undervaluation bias against the Swiss franc was relieved a little, and the AUD remains the most undervalued of the majors.
Click here to read the full report:
http://www.easyforexnews.net/wp-content/uploads/2011/08/GDPBD00000189824.pdf
Deutsche Bank
Fixed Income Research – Global