- Surprise development in the FX markets late in yesterday's US session: Fitch downgraded the US from AAA to AA+ with a stable outlook.
- Reasons for the downgrade: Fiscal deterioration over the next three years and elevated government debt.
- EUR/USD jumped on the news.
- However, it is doubtful if this downgrade will have a lasting impact on the FX market beyond the initial reaction.
- Treasury Secretary Janet Yellen called the downgrade "outdated."
- Market likely to see it in a similar way.
Monthly Chart Analysis (Primary Trend)
1. The exponential moving average (EMA) is a trend-following indicator.
2. EURUSD's green 5-month EMA is above its orange 10-month EMA.
3. This puts the EMAs into bullish mode.
4. The RSI is on the bullish side of 50 (blue rectangle).
5. The longer it maintains on this side, the greater the momentum support for EURUSD's primary trend.
6. The positive primary trend is considered the core driver of trend direction.
Weekly Chart Analysis (Waning Momentum)
1. EURUSD has charted a series of higher troughs, followed by higher peaks.
2. This puts the weekly chart into a defined uptrend.
3. However, the trendline gradient has shifted down from the green trendline to the orange trendline.
4. This suggests that the weekly trend's upwards momentum has waned somewhat.
5. However, the weekly RSI remains above 50 (blue rectangle).
6. If it maintains above 50, the weekly uptrend will have an underlying momentum support.
Daily Chart Analysis (Potential Dip in Uptrend)
1. The EURSD daily chart has pulled back to a confluence of support.
2. This includes the 76.4% Fibonacci retracement level (red horizontal) and price support (blue shaded horizontal).
3. We are now assessing if the EURUSD is trading at a key reaction level.
4. I.e., this may be a correction in the broader uptrend.
5. If so, it sets up a potential dip in an uptrend scenario.
6. A golden-cross by the green 5-day EMA over the orange 10-day EMA and a movement by the RSI into the 50+ area (green rectangle) will be constructive in this regard.
Senior Market Specialist
Russell Shor joined FXCM in October 2017 as a Senior Market Specialist. He is a certified FMVA® and has an Honours Degree in Economics from the University of South Africa. Russell is a full member of the Society of Technical Analysts in the United Kingdom. With over 20 years of financial markets experience, his analysis is of a high standard and quality.