EUR/USD Accepting of Italy's Outlook Downgrade, Remains 'BBB'
- Fitch ratings affirmed Italy at ‘BBB,’ downgraded outlook to negative from stable
- EUR/USD was down 0.57% on Friday but didn’t suffer on the ratings release
- Moody’s rating agency will offer their assessment of the country next Friday
Italy’s sovereign debt rating was affirmed by Fitch at ‘BBB’ Friday, but received a downgrade on their outlook from stable to negative. The time of the release led to little impact on the euro with European markets closed and the weekend underway. A steep drop in the EUR/USD pair earlier in the day suggests markets may have expected the downgrade or the news was released early to some parties. Either way, the downgrade does not bode well for Italy.
Next week, Italy and the Eurozone may be dealt another blow when Moody’s provides their rating of the country. Currently, Moody’s rates Italy at ‘Baa2’ with a negative outlook, last updated May 25th of this year. With an already negative outlook, a rating downgrade would be a significant blow. Italian bond yields rest above 3.20 and the populist 5-Star Movement and League coalition continue to threaten the status quo of the European Union.
EUR/USD 15-Minute Price Chart, August 30 – 31
As previously touched upon, the response in the euro was muted. A 15-minute chart of the EUR/USD pair showed euro strength fading earlier in the day, well before the rating action was released. Further, the euro had recently staged 12 consecutive days gaining ground against the greenback. Eventually this spree would have to break and Thursday’s resurgence of emerging market concern proved a sufficient catalyst.
EUR/USD 2-Hour Price Chart, August 17 – August 31
Heading in to next week, the economic calendar has a distinct lack of high importance data for the Euro-area. With that in mind, markets will likely look to Moody’s rating action as the most important data piece of the week. The release is scheduled for Friday September 7th.
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--Written by Peter Hanks, Junior Analyst for DailyFX.com
DailyFX provides forex news and technical analysis on the trends that influence the global currency markets.