Moody’s Credit Downgrade a Reminder of US’s Perilous Fiscal Situation

But the fact that Moody’s were the last of the big three ratings agencies to downgrade and not the first means that they were probably just late to the game when identifying the US’s credit woes. What the credit downgrade headlines have done however is bring concern about the US’s finances back to the fore, with traders again showing signs of tentativeness towards US assets. Particularly as Trump’s proposed tax bill appears to worsen the deficit rather than address it.

The Moody’s downgrade news did act as a catalyst for the gold price rise this week. Gold ended last week languishing below the $3200 level, but a combination of renewed US fiscal deficit concerns and a downturn in the Dollar now has gold hovering up around the $3300 level. The precious metal remains popular on price dips, which is thus far limiting gold’s downside moves despite the generally better market sentiment as it pertains to tariffs. Levels to watch include resistance around $3318 and $3347, with support at $3234 and $3180. Over the medium-to longer term, further upside in gold is favoured, though if any positive trade-deal headlines arise this could be an obstacle for gold in in attempting to reclaim the $3500 level.

‍

The US credit downgrade news has taken a toll on the USD from which it has yet to recover, as evidenced by the slide in the Dollar Index (DXY) to below the 100 level. If support at 99.80 is breached, this could open a further slide towards 99.12. Another factor not helping the greenback is the softer US inflation figures released last week which remains fresh in the minds of traders, which could keep the Fed on track for a potential rate cut in July. Like gold, any positive trade headlines could turn the prevailing sentiment on the USD, but in the Dollar’s case, it would likely take a turn higher if trade deals start getting signed.

The oil price continues to hold together it’s rebound from the early May lows. Supporting energy prices is the US-China tariff pause and hopes of a trade deal, while the prospect of Russian and Iranian oil supply coming back into the market is limiting the upside moves in oil. That’s because, there is a possible scenario where the US strikes a deal with Iran on the nuclear front and with Russia regarding its war in Ukraine, and both could see sanctions lifted and global oil supply resume from these two major energy producers. But by all accounts, (such as from White House officials), there remains some way to go before any deals are finalised, if at all. However, oil prices will remain subject to the market’s interpretation over the path of the US’s negotiations with Russia and Iran. Levels to watch for US crude this week include support at $61.58 and resistance at $63.18.

‍