Another downgrade has been poured over Greece, this time it was S&P lowering the country's credit rating to SD (Selective Default) due to the yet uncertain outcome of its buy-back programme. However, the reaction of EUR/USD was mute, and the cross continued to grind lower as part of the almost expected correction after yesterday's highs above 1.3120. The bottom was in the boundaries of 1.3040, picking up pace afterwards with the shared currency appreciating to the 1.3080 region against the greenback.
… ECB a non-event?
During the European early afternoon the ECB will hold its monetary policy meeting. However, the broader consensus expects the central bank commanded by Mario Draghi to stay on the sidelines, leaving the lending benchmark intact at 0.75% and the balance sheet unmodified. Investors' would then focus on the usual Q&A session, although its repeated rhetoric may provoke it to lose its former effervescence.
The rescue package directed to Spain, once seen as a trigger for the ECB to step in the markets via its OMT programme, is now at the very back of the rear mirror. However, the likeliness of a call for aid by Madrid could well be materialized in the first half of the next year, as long as its fundamentals do not deteriorate at a faster pace.
… Reality calls
The broader picture is now telling us that the economic activity during the third quarter has contracted as expected in the 17-nation bloc: 0.1% inter-quarter and 0.6% on the annualised basis. Data have thus warned the euro bulls, now stuck in the mid way between 1.30 and 1.31 and waiting for some major surprise out of President M.Draghi's sleeves to find another excuse to climb higher. On top of it, Greece unemployment rate broke the previous record high, posting 26% in its last print.
In the opinion of expert Karen Jones at Commerzbank, the cross has finally run out steam in the vicinity of the area at 1.3180, adding "This should ideally hold the topside and provoke failure. Immediate support is offered by the accelerated uptrend at 1.3053 and we will need to see a close below here at the very minimum in order to alleviate recent extreme upside pressure". The analyst suggests that a breach of the latter would accelerate the decline to the area around the key 200-day moving average, around 1.2800/1.2788