Global macro overview for 24/05/2017:
The Moody's rating agency downgraded China to A1 from AA3. The last time the Moody's had changed the Chinese rating was in 1989. In the statement, the rating agency said, that rating reflects expectations that China's financial strength will erode somewhat over the coming years and stable outlook reflects the assessment that at the A1 rating level risks are balanced. Moreover, regarding the future expectations, Moody's said, that they expect that Chinese economy-wide leverage will increase further over the coming years. Indirect and contingent liabilities will increase, China's growth potential to decline to close to 5% over the next five years and the government's direct debt burden to rise gradually towards 40% of GDP by 2018 and closer to 45% by the end of the decade. In conclusion, a pretty negative downgrade with an even more negative outlook for the Chinese economy will definitely make an impact on the financial markets when properly digested.
Let's now take a look at the AUD/USD technical picture at the H4 timeframe. The AUD is a commodity currency with close ties to the Chinese economy. The market reacted negatively to the downgrade news and the price retreated from the technical resistance at the level of 0.7509. Currently, the price is testing the upper boundary of the golden channel line around the level of 0.7348. The overbought market conditions and the negative momentum might suggest a further pull-back towards the next technical support at the level of 0.7394.
