Thursday, 9 Dec 2010

Irish Downgrade Sends Euro Lower

A downgrade in the sovereign debt rating of Ireland by Moody's had traders selling the euro this morning. The Bank of England also held interest rates steady and did not change the Asset Purchase Facility.

The euro was on its back foot following the downgrade of the sovereign debt rating of Ireland by Moody's Investor Services. European equities also turned south following the announcement.

The decision does not come as a surprise given the 65 billion euro bailout, the Irish banking system that was backstopped by the government and a potential collapse of the Irish government. What is surprising is the rating of stable that was assigned by Moody's.

As expected, the Bank of England kept the Official Bank Rate unchanged at 0.50 and held the Asset Purchase Facility at the previous level of 200 billion pounds.

At lunchtime during the European session the EUR/USD was lower at 1.3220 after opening the day at 1.3313. The GBP/USD was trading lower at 1.5750 after beginning today's trading at 1.5827. The USD/JPY was higher at 84.05 from 83.73. Spot crude oil was down at $88.18 from $89.92.

The main driver for the New York trading session will be US weekly unemployment claims that are scheduled to be released at 15:30 GMT. Expectations are for 426k new jobless claims. Judging from last week's disappointing Non-Farm Payrolls report, we may expect this number to come in on the downside.

This may help support the euro and push the EUR/USD up to the resistance on the hourly chart at 1.3250. Should the report be released with a result that beats market expectation the EUR/USD could continue to fall today. Support comes in at the bottom of the recent consolidation patter at 1.3135.