According to S&P, nothing is safe in Europe. The credit rating agency put all euro-zone countries on review for a possible downgrade and confirmed an early report by the Financial Times.
This is a second blow to Germany, that had a bad bond auction. Yet again, the core is not safe, and also other solid countries are in the danger zone. There is now a full confirmation from S&P to this report.
With no safe havens within the euro-zone, money can flood outside of the zone. Up to now, the euro held up quite well, but this can change very soon. Will we see the collapse soon?
Even if Germany’s perfect AAA rating will eventually remain untouched, the warning is harmful enough. The news comes after German chancellor Angela Merkel and French president Nicolas Sarkozy announced an agreement.
Germany has been warned that it can lose one notch. This puts the zone’s No. 1 economy in a group together with Austria, Belgium, Finland,
Netherlands, and Luxembourg.
The other countries, including France, Italy and Spain, could get a two notch downgrade. Cyprus is already on “CreditWatch negativeâ€, and Greece is already rated CC – not too much left.
This agreement falls short on the ECB utilization and on Italy (which has its credit rating warning confirmed). The short lived rally turned into a complete loss of all the gains, with EUR/USD falling below 1.34.
Support is found at 1.3360 – the trough that the pair reached at the end of the previous week, after losing the highs reached following the coordinated central bank action.
So, as Germany is probably warned that its AAA rating will be taken away, euro/dollar risks falling back to the low range that characterized it after the failed German bond auction.
Below 1.3360, 1.3320 is minor support, followed by 1.3260. Resistance is at 1.3420, followed by 1.3480. For more on the euro, see the EUR/USD forecast.
Time is running out for European leaders. The ECB will speak out on Thursday, as the leaders begin their meetings. The EU Summit will occur on Friday, and the whole common currency seems to be at risk.
