Fitch Warns on Italy but Affirms France AAA Rating

U.S. Dollar Trading (USD) sentiment improved and US stocks moved to fresh 5 month highs after rating agencies affirmed Frances AAA rating which was a relief to cautious sidelined investors. With little US economic data traders instead looked to company earnings which so far have been better than expected. In US stocks, DJIA +69 points closing at 12462, S&P +11 points closing at 1292 and NASDAQ +25 points closing at 2702.  Looking ahead, Crude Oil inventories forecast at 0.9m vs. 2.2m previously. Also FED Beige Book released.

The Euro (EUR) the markets took heart with Fitch comments that Germany’s rating was safe at AAA and France is unlikely to be downgraded in 2012 and only Italy is currently at threat of imminent Downgrade. The EUR/USD and EUR/JPY both enjoy a relief rally for the second day but gains were limited and the major found heavy resistance above 1.2800. The downside is still likely to be tested again before we can talk of the downtrend ending. Looking ahead, Final Q3 GDP forecast at 0.2 vs. 0.2% q/q.

The Japanese Yen (JPY) the USD/JPY contained to Monday’s range with more action seen on Crosses with AUD/JPY and EUR/JPY moving higher with stocks. EUR/JPY is being sold on rallies however and in Asia on Wednesday we are once again seeing selling from Japanese investors. AUD/JPY moved to Y79.50 and is in striking distance of Y80 going forward.

The Sterling (GBP) the GBP/USD tested 1.5500 in Europe but failed to break the big figure and consolidated below for the rest of the day. The market has traded in this range for many days now and is primed to break out in fresh direction as the trading year heats up. Strong stock markets suggest a move to the 1.5700 whilst a Greece debt deal failure opens up 1.5200 and 1.5000.

Australian Dollar (AUD) the AUD/USD once again outperformed the rest of the risk currencies with the Asian commodity currency seen insulated from the Eurozone debt crisis and fortunes instead linked to the China story. Some weaker than expected Chinese import data yesterday has prompted some speculation the China may adopt more monetary easing or stimulus measures.