Italy Downgrade Melts Euro

Today’s FX action in Asia was initiated right near the day’s open when the S&P ratings agency announced that it had downgraded the debt rating of Italy and subsequently put them on negative watch. This move pretty much took the markets by surprise as while a downgrade of Italy was deemed imminent by Moody’s, the S&P move was slightly off the radar. Now that the 90 day review period of Italian debt as passed last Friday, a Moody’s downgrade is expected within the month. The EUR/USD, just off of New York highs of 1.3720, took the announcement hard, dropping from 1.3680 to 1.3615 in a swoop. While the pair did stabilize over the course of the session, the Euro saw subsequent lows near 1.3595 late in the day against the dollar. The downgrade immediately set the tone of Asia as risk adverse, and the moves that followed favored the yen and the dollar.

As the EUR/USD wilted on the downgrade news, the AUD/USD shed 40 pips to 1.0170, the EUR/JPY dropped 50 pips to 104.30, and the GBP/USD fell 30 pips to 1.5665. Most pairs remained just off of lows as the day wore on with the exception of the Aussie dollar. The AUD/USD saw bids as the RBA monetary policy meeting minutes proved more hawkish than was anticipated, pushing the pair through 1.0240 as the bank stated it was concerned with inflation as well as the deteriorating global situation. The AUD/USD looked to exit the session near 1.0200.

Back from a three day weekend, Japan saw its currency strengthen further, much to the chagrin of the BOJ which made its usual comments on watching yen moves carefully as well as stating that one sided moves were not desirable. With this having little affect on the FX markets, the BOJ maintained that it will present its case at the upcoming G20 meetings where they will prove that the stronger currency is hampering rebuilding efforts throughout Japan. The news that the Greek government may present a referendum to the people as whether to accept staunch austerity measures or leave the Euro Zone surely did nothing to ease the nerves of BOJ officials as traders sought the safety of the yen and dollars following the report.

With no real top tier data ahead in London, traders will continue to focus on the plight of Greece.

Source: Forex.com

20.09.2011