Italy, Spain, Ireland, Portugal, Cyprus Sovereign Downgrades On GREXIT


(EU) Fitch commented on Spain that the country to significantly miss its 2012 and 2013 deficit targets and that the Spanish bank aid was a critical step in reducing sector concerns.

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(EU) Fitch cautioned that unless Euro Zone found new solutions, the break-up risk rises; and that sovereign ratings were under strong downward pressure. A potential Greek EMU exit could lead to AAA sovereign downgrades (Note: Fitch Asia-Pacific chief previously stated that any Greek exit from EMU would probably lead to sovereign downgrades of Italy, Spain, Ireland, Portugal and Cyprus).

(EU) It was reported Cyprus may require a bailout before the end of the month (June 30th is the regulatory deadline to recapitalize Cyprus Popular Bank). The CPB needs €1.8B to fund its shortfall (approx 10% of GDP). In addition, Cyprus also has €2B of sovereign short-term debt maturing next year. It was suggested that an aid request to the EU may be seen this weekend or next.

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(US) Fitch: US, France and UK AAA rating under pressure and respective debt ratios must stabilize fairly soon.

  • Looking for US medium-term consolidation program in 2013
  • New LTRO from the ECB is an option but not seen in the near-term

How to interpret these headlines?

It is no surprise that the initial optimism following the Spanish Banking Bailout request was quickly offset by the overwhelming concerns over other issues that are still lingering in Europe.  With Fitch making its round of comments today, bringing focus back to Greece and the potential of a EMU collapse with Greek exit, market reacted by fleeing to the safety of USD… However, despite of potential sovereign downgrades for France, Italy, Portugal, etc… and a new bailout candidate, Cyprus, market seemed to have taken the news well, keeping EURUSD in a tight range around the 1.25000 level… which confirms my view that perhaps the market has become fatigued over European crisis and is ready for a rebound… OBSERVATION: It is usually the case when the market is ready to turn, you’ll begin to see less and less reaction to negative news, but more and more reaction to positive news… this is described in my Market Psychology article.

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About Henry Liu

My name is Henry Liu and I am a Forex Trader and Mentor. I help traders achieve consistent income trading Forex while spending less time trading. My focus in trading is a combination of Fundamental Analysis, Technical Analysis, and Market Sentiment. Far too many retail Forex traders concentrate on just one aspect of trading, technical analysis, and ignore everything else; it is my goal (and vision) to educate every trader on how to take advantage of news trading and become more balanced traders.

You can find more information about me on my Google Profile.

Comments

  1. Hi Henry,
    Question for you,
    1) S&P has warned that India ran the risk of losing its “investment grade”. Compare with spain, portugal, greece and italy, INDIA has well economic condition then Why S&P warn?
    2) People lose their faith on the country’s economic condition because of such credit rating agencies.
    Do you think country need support of credit rating agencies?

    If possible, please explain in details .

    thanx

    • there has been a lot of controversies with credit rating agencies that they weren’t doing their jobs before with the subprime mortgage crisis and now seems that they are doing too much. Countries like Japan and US had their ratings cut recently but have no problem getting funding, so to answer your second question, I believe it should be no, not necessarily.

  2. Kennedy Mwangi says:

    Thanks for the new sites, ever informative to me.
    Regards ken

  3. I like this new format Henry…Thanks for all your hard work and dedication to us traders….

  4. Nice one Henry.

Trackbacks

  1. […] changes, and Spain accepted the deal with plans to formally make the request on June 21.  Fitch and Moody’s decided to dial-up the rhetoric and pre-empt their messages on potential sovereign ratings cut prior to the Greek election.  Fitch […]

  2. […] changes, and Spain accepted the deal with plans to formally make the request on June 21.  Fitch and Moody’s decided to dial-up the rhetoric and pre-empt their messages on potential sovereign ratings cut prior to the Greek election.  Fitch […]

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