USDJPY – S&P cuts the Japanese rating!

That was speculated for a while, yet still came as a big surprise. The
S&P rating agency cut Japanese sovereign rating from AA to AA-, citing
massive public debt, high deficit and little prospects for improvement
for both. While Japan does finance most of the debt with domestic
savings, large deficits indeed should be perceived as a risk factor.

This decision is severely negative for the yen. It means that this
year the USDJPY not only will be under (moderately) bullish influence
from the US market yields but also will be supported with the Japanese
factors which so far were relatively neutral for the pair.

Technically, the pair should be riding the subwave 3 in a large wave 3
– theoretically very strong upward movement getting it as high as
85,10. Resistances on the way are at 83,50 and 84,40. A break of 83,50
could be treated as a confirmation of this upward structure.

*EURUSD – no surprises*
The FOMC didn't surprise the market presenting a dovish statement.
What was not entirely clear, was if the vote was about to be
unanimous. T.Hoenig was replaced by hawkish C.Plosser and R.Fisher who
could vote against the chairman, but eventually didn't. They still
can do it in March but the unanimous vote confirms there will be no
hurry to change the tone for as long as the labor market doesn't
improve significantly. At that point, we see the Fed rising rates only
in 2012 and its policy being relatively neutral for the dollar in
2011. Thus, major shifts on the EURUSD should come from developments
in Europe (mostly related to the debt crisis).

The pair advanced somewhat after the statement yet the gain was
moderate and the resistance of 1,3750 hasn't been tested yet. The
pair broke the trend line today morning after the news from Japan but
the support at 1,3640 halted a decline. Only when supports at 1,3640
and 1,3540 are broken, one can anticipate a larger sell-off to begin.
Having that said, we don't see a significant upward potential on the
pair in the near term.

*Events to watch – US claims, durables and Microsoft*
US initial claims are the data to watch today. The number of claims
fell to 404k last week from an unexpected jump two weeks ago and the
market expects the number to stay slightly above 400k. A drop below
the 400k threshold would be positive for the dollar, especially given
the momentum after the S&P's decision today. The data will be
released at 8.30 ET (14.30 CET) along with a report on durable orders
(consensus +1,5% m/m for the headline and +0,8% for the core). On the
corporate front, investors await a report from Microsoft (after the
bell, consensus for the EPS is 0,68 USD) and from Nokia, Caterpillar,
Lockheed Martin and Procter&Gamble among others.
Source: Fxstreet.com