In the previous European trading exchanges, the Euro was supported by the release of the French and Italian Industrial Production reports, which showed both improvements in August. But as markets anticipate the US corporate earnings report, risk sentiment is likely to send investors to safer currencies. Uncertainties over Spain and Greece are also seen to add to the negative sentiment, thereby pulling down the single currency versus the Greenback in today’s European trades.
Following the Spanish government’s announcement of its budget reforms and the result of the bank stress tests, Standard & Poor’s moved to lower the credit rating of the country by one level above the junk status, citing mounting risks to economic growth. The nation’s credit rating was cut to BBB- from BBB+. In a statement by the ratings agency, it said: “The negative outlook on the long-term rating reflects our view of the significant risks to Spain’s economic growth and budgetary performance, and the lack of clear direction in Euro Zone policy.” Spain has been resisting pressure to request for a bailout, but investors consider such move as positive for the Euro as it would open the way for the activation of the European Central Bank’s bond-buying plan to drive down borrowing costs. Unless Spain asks for financial assistance, it is likely that the single currency would fall against its counterpart currencies.
In the US, concerns about the US company earnings report are seen to hurt risk sentiment, and cause investors to flee riskier currencies to the safety of the Dollar. Weak earnings are seen to weigh on the shared currency and increase the appeal of safer currencies. With all these factors, a sell bias is likely to be a better choice for the EUR/USD pair in today’s European trades.
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