Fitch Downgrades Spain

Because of the holidays both in the U.S. and the U.K. today, traders should expect much lower volume than normal. The markets will stand mostly in place with brief moments of sudden volatility if a large speculator enters and tries to take advantage of low liquidity. On Friday the markets saw negative trading among the equities in the States and this came on the heels of a late announcement by Fitch, the Rating Service, after they downgraded the credit risk of the Spanish Bonds. It is probably no coincidence that Fitch waited until the international markets were mostly shuttered to release the very negative news. The USD didn’t react too much against the EUR upon the news but this was mostly because investors had left their offices already. The EUR can expect another turbulent ride this week because of the Fitch action and there can be little doubt that the Sovereign Debt crisis is by no means over.

Europe will release Money Supply data today, but because of the holidays both in the States and the U.K. all trading results today should be looked at with suspicion. The uncertainty in the currency markets could cause startling moves today, but it is likely that tomorrow could be the real test. The Chicago PMI was released on Friday from the U.S. and it followed suit with the Empire State Manufacturing Index earlier this month and proved negative. The GBP and JPY both kept pace and traded in range of Friday, but both currencies can expect an interesting week with the Sovereign Debt crisis shadow and fear of contagion which could set off risk adverse movements. It should be remembered that on this coming Friday the Non Farm Employment Change numbers will be published and could cap off what may become a wild week. Today is the last trading day of May, a month in which the USD proved it is still regarded as a safe haven. International equities suffered across the board on the major indexes. The question going into this week is how much of the negative news from Europe has been digested and what type of implications will be taken into consideration by investors if the debt crisis continues to grow. Caution should be the word of the day.

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