Ratings agency Moody’s surprised the market on Friday with a downgrade of UK’s credit rating. UK was slapped with a downward revision to  AA1 from AAA. Moody’s expressed that the rating cut was attributed to the persistent weakness in the growth outlook and it expects “sluggish growth to extend into the second half of this decade.â€
Italians walk to the polls today and tomorrow to decide their country’s fate and future. Italian voters would choose 615 members to comprise the Chamber of Duties, and another 315 member for the Senate. Italy is Euro-area’s third largest economy and the market is keen to monitor the results and potential after effects of the election results going forward. An inconclusive elections result could hurt the Euro as Italy desperately needs economic reform and stability. Key runners in this election are Pier Luigi Bersani, Mario Monti, and Silvio Berlusconi, with many favoring a Bersani win.
Commodities
It was another tough week for gold bulls as price descended further in the $1,550s. After price breached the $1,600 level, bulls were barely able to bring price back above it. Price action-wise, we could see the $1,526 12-month lows soon.
Oil finally succumbed to intense bear pressures this week, after bulls have been unable to maintain a hold of the $98 level for four straight weeks. The week started off with a drive higher towards the mid-$97 where the bears started to paw down on willing buyers. This somehow resulted to a domino down move breaking the $95 support area which held for nearly a month. Now, price is back down to prices reached in early January and price could still be enthusiastic enough to move towards the $90 level.
Currencies
EURUSD continued to press lower after an ascending channel, which coincides with the crucial support level at 1.3300, broke this week. Price declined by 160 pips and reached a 1.3144 low before a minor bounce on Friday. Price needs to trek higher toward 1.3300 in order for bulls to rectify the situation.
USDJPY finally settled down this week, after many weeks of over-enthusiasm from the buyers. The pair traded a mere 144 pips and traded inside last week’s range. Bulls must be worried as this is the third week that they were unable to close above the 94 level. Bears could launch a move to 92 soon.
GBPUSD bulls had a disastrous week as price 5 consecutive lower highs and fell 680 pips in 2 days. The break of the 1.5200 level and close at 1.5160 this week is extremely significant as this is the first in more than 2 years! Traders should not fight this trend and would be better off at the sidelines. Price could reach – and breach – the 1.5000 level any time soon.
The Week Ahead
Monday’s news highlights are China’s HSBC Flash Manufacturing PMI, the Italian Parliamentary election, and speeches from Bundesbank President Weidmann and Bank of Canada’s Carney.
On Tuesday, we will hear about New Zealand’s Inflation Expectations; speeches from RBA’s Debelle, UK MPC’s Bean, and Fed Chairman Bernanke; UK CBO Realized Sales, Canada’s S&P/CS Composite-20 HPI; US CB Consumer Confidence and New Home Sales.
Wednesday is again packed with a raft of news like New Zealand’s Trade Balance; Japan’s Retail Sales; Eurozone M3 Money Supply; KOF Economic Barometer; UK Second Estimate GDP; US Pending Home Sales, Durable Goods Orders; ECB Draghi’s speech.
On Thursday, New Zealand’s ANZ Business Confidence, Japan’s Preliminary Industrial Production; Australia’s Private Capital Expenditure; Switzerland’s GDP; Eurozone and Germany’s CPI; German Unemployment Change; Canada’s Current Account; US Unemployment Claims and Preliminary GDP.
Finally on Friday, there are Japan National and Tokyo Core CPI, Capital Spending and Household Spending; China, Spain, Italy, UK, and Eurozone Manufacturing PMI; Eurozone Unemployment Rate; Canada GDP; US Personal Spending, Core PCE Price Index, and ISM Manufacturing PMI.
