Potential ratings downgrades and uncertainty in the eurozone have been dragging the euro lower. Since EU leaders disappointed investors and as a result, the euro lost its credibility. The recent price action in the forex market shows that investors lost confidence in EU politicians ability to end the ongoing debt crisis and protect eurozone members from risks of contagion. Investors can’t see any real progress. Some economists think that under these circumstances, the European Union will go into recession in the New Year.
Senior trader at Mizuho Corporate Bank Michiyoshi Kato said “My sense is that the market is satisfied, having driven the euro below the important $1.30 support level earlier this week. But most people are thinking it’s going to hit $1.25 within the January-March period. France is the biggest worry. The spread on its bond yields versus German Bunds has widened since the beginning of the crisis and if it loses its triple A credit rating, the crisis may start engulfing the eurozone core”.
As worries over the fragile economy in the EU sour the sentiment, S&P Ratings Services cut the credit ratings of 10 Spanish banks yesterday. Ahead of the Christmas holiday, trading becomes thinner so beware the whipsaws. An analyst at BNP Paribas Luigi Speranza said “S&P’s negative credit watch continues to hang over the eurozone bond market and negotiations on the Greek PSI (debt swap talks) are far from reaching a positive conclusion. Hence we are left with the impression that market pressure will have to intensify in order to trigger further policy steps that could then set the basis for a more enduring stabilization of the eurozone bond market.”
EUR/USD is trading at 1.3035 by the time of typing and for today resistances are located at 1.3056 and 1.3149. Support levels are 1.3006 and 1.2964.
GBP/USD is at 1.5527. Resistance levels are located at 1.5548 and 1.5644. Supports are located at 1.5490 and 1.5394.
USD/CHF is trading at 0.9386 by the time of typing and for today resistances are located at 0.9442 and 0.9497. Support levels are 0.9337 and 0.9282.
AUD/USD is trading at 1.0002. Resistances are located at 1.0051 and 1.0113. Support levels are 0.9922 and 0.9858.
The economic calendar for Friday is light. EU Trade Balance data will be released at 10:00 GMT. Statistics Canada will release Foreign Securities Purchases data at 13:30 GMT. U.S. Core Consumer Price Index report will be released at 13:30 GMT. Federal Reserve Bank of Chicago President Charles Evans will hold a press conference at 1:15 GMT.