Finally, after a long period at looking the other way, rating companies are critical of Japan. More precisely the level of public debt in that country. Greece had its credit rating lowered recently, and other countries, like UK, received warnings over their budgetary practices. Yet the two biggest debtors, among industrialized nations, USA and Japan, were left alone. Not any longer. S&P  lowered the outlook on Japan’s AA sovereign credit rating to “negative”, citing concerns over the lack of plan to halt debt from spiraling out of control. As of right now there is no risk of rating to be cut, but at least warning has been issued. Does it mean that there are no “sacred cows” and USA will be next?

Japanese Yen didn’t suffer any consequences because of that. Combined with BoJ decision to leave rates unchanged (what a surprise), JPY largely gained during the day. Evidently public debt levels are secondary right now to unemployment and interest rates. But eventually this will become an issue of importance, so it is something to keep in mind. Budget deficits can’t be run up into stratosphere without finally effecting currencies.

We need to go back couple of posts to an update when I discussed a long trade in GBP-CAD. The buy order was suspended on Sunday, while waiting to see what happens during the open. I didn’t want the price to gap through the entry and mess up the trade. Few hours into the trading day, after the price drifted lower for, order was reinstated to go long at 1.7105. It happened early Monday and I stayed with it until few hours ago, when the trade was closed.

I was hoping to see 1.7300, but it wasn’t to be. At least not in this swing. Price established a minor low at 1.7150 and then made new high at 1.7250. Next move undercut previous low and rebounded. This is often indicative of changing trend. On the next run up price failed made a new high. It was time to get out. Exit happened at 1.7223 for 118 pips.

Canadian Dollar has been under selling pressure lately, which worked out good for me. I expect more of it, but not necessarily immediately. This is an intermediate term chart, showing price getting close to next resistance at around 1.5100. What I’d like to see is for the price to reach that level, retrace and then move higher. That’s where I’d like to buy it, if it price unfolds in this fashion. Another scenario is that we will see substantial pull back. Could be a good place to buy at or under 1.4800. No way of telling if this will indeed take place, but that area would provide decent risk/ reward. AUD-CHF sell order from last post is still valid.

Mike K.