Credit Rating Agency Moody’s shocked the market yesterday by keeping Spain’s sovereign credit rating at BAA3, the lowest investment grade, instead of junk status as so many analysts have been predicting. This is not only another “too big too fail” scenario in my opinion, but really brings Moody’s integrity into question as over 100% of their ratings actions following an Outlook Negative since 2010 have been downgrades, except of course in this case when a ratings downgrade would trigger a financial tsunami such as with Spain today…
Here are the details to Moody’s action:
(ES) MOODY’S AFFIRMS SPAIN SOVEREIGN RATING AT BAA3 (lowest level of investment grade); OUTLOOK REMAINS NEGATIVE
RATIONALE FOR NEGATIVE OUTLOOK
WHAT COULD CHANGE THE RATING UP/DOWN
How to interpret this report?
Moody’s report didn’t not offer any additional insight that the market didn’t already know. The key reason in my opinion for Moody’s to keep Spain above junk is ECB’s OMT, so major applause to Signore Draghi. However, I am inclined to believe that this rating’s decision is an appeasement to the market as none of the credit rating agencies want to be the one responsible for another major market sell-off. The timing of this release is also very clever, just a day before the EU Leader’s Summit where Spain is rumored to request aid from ESM…
Regardless of what I think of Moody’s, I believe this is a major positive factor for the Euro, and as I have said early week, it’s time to buy EUR on dips. I believe EURUSD has the potential to make a new high, breaching the 1.3170 level, and reaching the 1.3500. With Moody’s downgrade axe no longer above Spain, I believe the overall sentiment would be in the direction of Euro longs, especially considering that the Feds have been very clear that they will keep QE3 running indefinitely, thus adding more fundamental reasons to go LONG on EURUSD.
Credit Rating Agency Moody’s Issues A “Stay Of Execution” For Spain…
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