The Spanish government faces a dilemma that has become more acute since the cash-strapped country’s credit rating was downgraded to just a step above non-investment grade or junk status. The implications from this will most likely affect the Spanish government’s ability to borrow money due to the fact that it might scare some bond investors away.
Standard & Poor’s latest report noted that the risks to Spain’s rating were rising due to the government’s hesitation in requesting a European financial lifeline. Although this warning from S&P may prompt the Spanish government to request a bailout out sooner, Moody’s, a rival agency has hinted it may downgrade Spain’s rating for making a request.
Investors are waiting for Spanish bailout news and the anticipation is affecting all of the major currencies and pairs. Even though a Spanish bailout request could inspire a short-term rally in the euro, there has been some resistance to such a move relating to medium to long term currency projects, given the thorny economic prospects, stringent austerity measures and increased unemployment in the Eurozone.
The effect that this talk has had on the major single currencies and pairs has been mixed. Following is a collection of news of these effects as of Wednesday October 16. We hope you are able to derive some benefit for your own trading strategy.
• The euro was trading near its’ one-month high against the USD on Wednesday, after the Spanish currency avoided a downgrade by Moody’s, a ratings agency. The support of the single currency was based on the fact that Spain was closer to a bailout.
• After Moody’s announcement not to downgrade Spain’s currency, the euro was higher against 14 of its 16 major peers.
• EUR/USD reached1.3123 during the European afternoon trading session, the pair’s highest since September 17; the pair subsequently consolidated at 1.3110, gaining 0.43%.
• On Wednesday, October 17th the euro was the winner against the pound and the yen, with EUR/GBP up 0.24% to 0.8121 and EUR/JPY rising to 0.37% to 103.35.
• It also seemed that Germany was lowering any resistance to Spain requesting a bailout that it increasingly seems the markets are seeking.
• The euro was higher against the pound and the yen, with EUR/GBP up 0.24% to 0.8121 and EUR/JPY rising 0.37% to 103.35.
• On October 16th, Analysts maintained a range in the GBP/EUR rate of 1.2290 to 1.2376.
United States Dollar
• The US Dollar opened weaker across the board as hope was building that Spain would finally officially submit a bailout request to ease the woes of the Eurozone’s debt.
• Investor service, Moody’s maintained Spain’s credit rating at investment grade rather than downgrading it to junk as S&P did. This further helped calm the markets.
• Analysts, on Wednesday, October 17th expected a range in the GBP/USD rate of 1.6050 to 1.6175.
Aussie and Kiwi Dollars
• The Aussie which has climbed to a two week high and Kiwi which rebounded from a two week low both have been performing well as investors are seeking higher yielding units.
• Both the Aussie and Kiwi Dollars’ strength was supported due to an increased demand for Asian stocks and commodities.
• There has been increased optimism for both currencies due to positive news from the Eurozone as well as strong US economic data. This news has provided support for both units in the near term.
• On Wednesday, October 17th, analysts see the GBPAUD trade at 1.5649 and the GBPNZD at 1.9766.
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