Risk aversion pushed euro and high beta currencies lower during the European trading session today.
Spain dominated the news again after Moody’s announced it downgraded five Spanish regions as the country’s troubled banking sector weighs on the economy. There is growing concern regarding Spain’s deficit after news reports show that the Spanish government said it will not be able to meet budget targets this year.
Despite all this, Prime Minister Mariano Rajoy has yet to ask for a bailout from the European Union, even as markets are expecting him to soon, and this is beginning to weigh on the euro.
Key technical levels were breached today as EURUSD was unable to hold above $1.30, falling just below it by late European session trading and going in to the New York session. The Single currency is down half a percent against the dollar so far today.
The British pound also fell in sympathy to the euro, weighed down by risk aversion. The GDP report due on Thursday will give a clearer direction for the pound. If it will show the UK is out of a recession, this will boost the currency.
Yen continues to underperform against the dollar, hovering near a three-month low reached in early Asian trading today when USDJPY hit the key 80 yen level. The Bank of Japan is expected to expand policy easing at its meeting next week as it is pressured to keep in line with other central banks (FED and ECB) and to offset these banks aggressive currency devaluations. Japan’s deteriorating trade deficit will give more reason for the BOJ to introduce more stimulus.
Canada’s dollar extended losses against the US dollar, weakening to a fresh two-month low ahead of key retail sales data as well as the Bank of Canada’s rate decision. It is expected to keep rates unchanged at 1 percent.