EUR/USD falls below support levels on leaking French/Italian downgrade news

[checklist]
  • Key market moving events today - UK Dec input PPI yoy was 8.7% less than 9.1% expected, mom declined a whopping 0.6%
    - Eurozone Nov trade balance was +€6.9 bln on expectations of -%1.5 bln
    - US Dec import price index met expectations at -0.1%
    - US Nov trade balance came in at $-47.7 bln, less than expected  $-45 bln
    - Standard & Poor’s downgrades most of Europe after US markets close
[/checklist]

The most important news of the day came surprisingly after the US financial markets had closed. Standard & Poor’s downgraded nine eurozone countries: Italy, Spain and Portugal were cut two notches; France and Austria are no longer AAA countries loosing one notch to AA+; Ireland was affirmed at BBB+ but the outlook lowered to negative. The only good news out of this downgrade attack was about Germany which was affirmed at AAA and its outlook was revised to stable.

As Standard & Poor’s policy dictates that country leaders be notified 12 hours in advance of any downgrade the leaks began to emerge shortly after the notices were sent out to politicians. How do we know this? Well, how else is it possible that intraday EUR/USD was down as much as 1.6% as low as 1.2623. Besides these leaks, euro was also pressured by latest Italian bond auction results which showed bid to cover at 1.215 or less than previous 1.364. Also, Greek debt restructuring talks broke down today and ECB’s deposit facility reached a new record at 489.9 billion euros. On Monday, it is going to be very interesting to see how this Standard & Poor’s late night downgrade attack plays out on euro and financial markets in general, especially on day when US financial markets are closed for celebration of Martin Luther King, Jr. Day.

To wrap up this day, we had SP500 decline 0.2% but recover most of the days losses by late day rally, gold declined 1%, crude oil fell 0.4% and EUR/USD finished the day down 1.3%.

1-month EUR/USD chart (4h candles)

[checklist]
  • Market moving events on Monday - US markets closed in celebration of Martin Luther King, Jr. Day
    - UK Jan Rightmove house price index
    - Japan Jan consumer confidence
    - Germany Dec wholesale price index
    - ECB’s Draghi speech
[/checklist]
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