Moody's has decreased the credit ratings of numerous smaller and medium-sized banks within the United States. The agency also indicated the possibility of future downgrades for some of the country's largest financial institutions. This move comes as a cautionary measure, as Moody's expressed concerns about the potential challenges that the banking sector might face due to funding vulnerabilities and a decrease in overall profitability.
The ratings agency downgraded the credit ratings of ten banks by a single notch. Additionally, it has initiated a review process for potential credit downgrades for six major banking entities. Among these are prominent institutions such as Bank of New York Mellon, US Bancorp, State Street, and Truist Financial.
Moody's said that "Many banks' Q2 results showed growing profitability pressures that will reduce their ability to generate internal capital" as a "mild recession looms and asset quality looks set to decline."
It also maintained that "Asset risk is rising, in particular for small and mid-size banks with large [commercial real estate] exposures."
In response, FXCM's US.BANKS basket shows some sings of weakness. It daily EMAs have crossed negatively (black circle) and the RSI has dipped below 50 (blue rectangle). Nevertheless, price has found support at 2,900 (red shaded horizontal).
If the EMAs and RSI remain bearish, the support level will struggle to hold. However, given that the longer term trend is looking more resilient it may prove to be a level that is regarded as "cheap" and pull the bulls in from the sidelines
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.