I just posted this in another thread on here, so sorry for the repost, but it’s more relevant here…..
Wow. That was quick! S&P have downgraded to AA+ a few hours ago. Bloomberg news report
I genuinely didn’t think they would get in there that quickly.
S&P and Moody’s ratings aren’t gospel, but LOTS of people do pay attention to them. A bit like The Times university league tables. You might not agree with how they arrive at the result, but you’d still be unlikely to attend one of the universities they list in 200th place!
This article is quite clear/simple at highlighting the main effects that may occur as a result of a downgrade (I don’t mean that you guys would have trouble understanding it if it wasn’t simple though, it’s just that the mechanical effects on the market are actually quite hard to get your head round, this article just sets out the “real world” effects)
US downgrade – 5 effects
This is a significant issue for anyone with open currency positions at the moment. Forex market is closed from late on Friday night until the Asian session on Sunday night. What that means is that the market will “gap” (where the price it opens at will be have a gap between where it left off on Friday night). This isn’t uncommon, but there’s nothing you can do about it. If you were shorting USD, you’re laughing, you’ll make an absolute killing. If you were long in USD/JPY or USD/CHF in particular (which quite frankly was a silly thing to do right now anyway) you’ll lose some serious wedge on Sunday night unless you had some stop losses in place.
I’m long GBP/USD, which means I should wake up on Monday morning with some lovely, and rather unexpected gains. But not quite as much as if I was in CHF or JPY.
Happy trading!