Euro exchange rate today: Currency market reaction to Italian downgrade is muted, EUR finding strong support at current levels

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Published on Friday, 13 July 2012 09:34

Written by Will Peters

International Money Transfers at our sister site

"We still have a target area at the level of about 120 for EUR-USD for this quarter" - Jyske Bank.

The euro (Currency:EUR) is tentatively advancing against a host of major currencies this morning in line with firmer equities and commodity prices.

The euro dollar exchange rate is 0.09 pct in the blue at 1.2213 while the euro pound exchange rate is 0.11 pct down at 0.79.


The move higher in risk-on assets follows news that the Chinese economy grew by 7.6 pct on a yearly basis in the second quarter. This was in line with consensus. Importantly though analysts are factoring in the chance of further stimulus measures being executed by the Chinese authorities.

Analysts have, for the most part, ignored the Moody's downgrade of Italian debt.

Moody’s cut Italy’s sovereign rating by two notches to Baa2, citing an increased risk that funding costs could rise further
possibly leading to a “sudden stop in market funding”.

"The euro’s reaction was relatively subdued, falling only 25 pips before staging a full recovery," notes Gareth Berry at UBS.

Beat Siegenthaler, also of UBS says:

"The Italian downgrade means demand from international investors for the bonds on auction today will suffer. While there is a risk of a short squeeze that could push the euro higher, we expect more selling into a bounce. We also expect the ECB to lower rates and launch unconventional measures in coming months, all of which will keep the euro under pressure."

The next big event for markets and the euro are the results of today's Italian debt auction.

Italy aims to sell bonds in maturities of up to 11 years in a market that is already jittery as investors fretted about the effectiveness of the European Union's measures to prevent the debt crisis from engulfing Spain and Italy.

Elsewhere, Jyske Bank have joined a host of analysts by forecasting that the euro dollar exchange rate will reach 1.2 in the near future.

"EUR is being sold as investors are questioning whether the EU politicians will be able to implement the strategy presented and whether it is realistic that they will do it in time. Moreover, the past two quarters’ economic indicators have been bad, to say the least, which is now really dawning on investors. We still have a target area at the level of about 120 for EUR-USD for this quarter," says a morning FX note from the Danish bank.