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Market Insights

Trading Insights: Flight to safety after Fitch cuts USA credit rating to AA+ from AAA

Copy of Blog Images - Skilling - 2023-08-02T125523.732

Market Talk:

Fitch downgrades the USA - triggers jump in volatility

What happens when the US government's financial stability gets downgraded by a credit rating agency?

Investors get uncomfortable, safe haven assets see increased demand and financial market volatility generally increases.

Screenshot 2023-08-02 124544

The above chart (1) illustrates the weakness of the US dollar vs the Japanese YEN during the last 24 hours.

Both the USD and JPY are considered “safe haven” assets during periods of uncertainty, with the JPY seeming to be a choice when the US gets into trouble.

Screenshot 2023-08-02 124609
Chart 2

The above chart (2) illustrates the strength of the German 10-year government bond during the last 24 hours.

Screenshot 2023-08-02 124629
Chart 3

The above chart (3) illustrates the jump in the VIX volatility during the last 24 hours.

What are international credit rating agencies?

Credit ratings are assessments of the creditworthiness of borrowers, such as individuals, corporations, or governments.

They can have various benefits for both lenders and borrowers, such as:

  • Easier and faster approval for loans and credit cards
  • Lower interest rates and better terms for financial products
  • More negotiating power and borrowing limits
  • Better chances of approval by landlords, employers, and utility providers
  • Higher returns on fixed deposits, debentures, or bonds

Fitch downgrades the USA creditworthiness and the US Dollar index records small gains?

The negative event of a USA credit rating downgrade triggers a flight to safety, while the US dollar is the currency of the USA, the move higher since the Fitch downgrade adds to the US dollar’s dominant position as a safe haven asset during periods of uncertainty.

Screenshot 2023-08-02 124651
Chart 4

The above chart (4) illustrates the US dollar index during the last 24 hours.

Skilling’s depth of CFDs products offers traders the opportunity to find trades in all market conditions.

Good luck and happy trading!


Today’s economic calendar

WTI Crude Oil +16.8% last 30 days

Screenshot 2023-08-02 124723
Source: TradingView / J. Knobel August 2 2023 7:02 AM UTC


Trading prospective:

WTI Crude Oil - uptrend intact

Screenshot 2023-08-02 124745

Technical commentary:

WTI Crude Oil current price $81.85 remains in a multi-week uptrend. This can be technically supported by the higher tops and higher bottoms price sequence (see chart). The clearing above the previous key resistance now turned support at $77.15 seems to have reinforced the view of a resumption of the prevailing multi-week uptrend. Bullish conditions seem to be in play with the prospects for a further price extension towards $85.45 on the table, downside risk below the $77.15 support could expose the lower $64.20s (see chart).

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Analyzing yesterday's market insights could help comprehend trends and make informed decisions for today's trading. Check out our previous trading insight here!

Not investment advice. Past performance does not guarantee or predict future performance.