Fitch downgrades Japan, AUD gains momentum

Market Brief

Yesterday, European stock markets were trading higher as traders are showing signs of renewed confidence in the Eurozone/Greek deal. The DAX was leading the charge and gained 1.93%, across the channel the Footsie was up 1.62% while Euro Stoxx 50 appreciated by 1.55%. Swiss equities weakly followed the trend and rose by 0.50%. European futures are all green this morning.

In the Asian session, it was pretty quiet in the FX market. USD/JPY consolidated around 119.10, slightly above the 118.60-75 support area, despite the fact that Fitch downgraded Japan’s long-term foreign and local currency issuer default rating from A+ to A (the agency placed Japan credit on Rating Watch Negative on 9 Dec 2014 ) on growing uncertainty over the government’s commitment to fiscal consolidation. The Nikkei edged up by 0.39%, Shanghai Comp was catching its breath and lost -0.84%, the Hang Seng is almost flat (-0.23%) while the Sensex is up 0.46%.

USD/INR was unable to break the 63.90 resistance (high from mid-November and late December 2014). On the long-term, the pair remains in an ascending channel and should therefore finds a hourly support around 62.50.

AUD/USD finally broke the 0.7846 resistance (multi highs) and is currently testing the high from March 26 at 0.7884. In case the Aussie get through the resistance, the following resistance stands at 0.7938 (high from March 24). On the long-term, AUD/USD remains in a declining channel as a rate cut remains on the table. However, the recent better than expected jobs data have weakened our call for a rate cut in May. We therefore can expect a strengthening Aussie in the short-term as the US economy is not picking up as fast as expected.

EUR/USD found some resistance at the 50dma and was unable to close above 1.0887. The euro found hourly resistance around 1.09/0915 and hourly support at 1.0757 and 1.0688 (Fib 50% and 61.8% on March rally). The release of the US April Consumer Confidence Index this afternoon may trigger some downward movement as we expect the index to come in slightly under the 102.2 median forecast.

The UK Q1 GDP preliminary figures are due today and are expected at 2.6%y/y (3%y/y prior). GBP/USD is strengthening for the last two weeks and broke the 1.5175 resistance (Fib 61.8% on Feb-April sell-off). EUR/GBP is about to erase completely gains from last Thursday and Friday. The euro is heading towards the 0.7120 support (low from March 17) for the second time in less than 4 days. On the upside, EUR/GBP should find some resistance around the key level of 0.72 (psychological level and Fib 50% on March rally).

USD/CHF is treading water and remains unchanged at 0.9550 while EUR/CHF lost of few pips overnight to 1.0385. Today traders will also watch Consumer Confidence from France, Economic Tendency Survey, PPI and Retail Sales from Sweden, Unemployment rate from Brazil and Richmond Fed Manufacturing Index in the US.