Forex News Recap (12/17): EU Creates 2013 Debt Mechanism, Ireland Downgraded

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Summary: The main stories from overnight included European leaders creating a debt mechanism beyond 2013, Moody's downgraded Ireland's credit rating 5 notches, and the German IFO Business Climate Index jumping to a record high. The EUR/USD was supported overnight, but lost its momentum after hitting the 1.3350 area.

1. European Leaders Create a 2013 Debt Mechanism -- the stated purpose of the EU Summit. But there wasn't any more movement on other immediate measures that can be taken to stem the debt crisis. Yesterday, the ECB did raise more capital from the EU, and seems to be the party that will continue to try and support periphery bond markets with strategic buying of bonds.

For now, Germany has said no to adding more funds to the 750 billion euro emergency fund, or using it more flexibly, for instance using it to buy bonds of troubled countries. So, what did we accomplish? The current status quo is now moved past May 2013. That seems to miss the point about the current situation worsening.

In Merkel's comments, she said she was impressed by measures taken by Portugal and Spain, and that 2011 will be the year of reforms for many euro-zone countries. Some other choice highlights include - Germany and others will do everything to secure the stability of the Euro, the rescue fund is sufficient, the crisis mechanism is an expression of solidarity, and agreements made yesterday is a step towards a European economic governance and the Europe will grow closer together. Pretty lofty rhetoric, we'll see if it plays out.

2. Moody's Downgrades Ireland Five Notches - In our second main story today, Ireland's debt rating was downgraded 5 notches by Moody's. That takes the country's credit rating from Aa2 to Baa1. That's 3 levels above non-investment grade and the same level as countries including Russia and Lithuania. The outlook is negative outlook, which means we could have more cuts to the rating coming. Moody's has also warned about downgrading Spain's rating and Greece's is on review for a possible downgrade as well. This is a Euro-negative development as it highlights the deteriorating situation in the Euro-zone's troubled countries.

3. IFO Business Climate Hits Record High - While the periphery struggles things in Germany are just fine. Today's Ifo Business Climate Index jumped to a record high of 109.9, with both the current assessment and future expectations gauges beating expectations. It was exports that had powered this index higher, but now business investment and the outlook for consumption in Germany are climbing as well. That means the German economy should continue to hum along, acting as the driving force in the region. Despite Germany's strong performance, worries over Euro-zone periphery nations debt will continue to pressure the Euro.

The rest of the article can be found at: http://bit.ly/fXbeBh

Category:

News & Politics

Tags:

• fx
• forex trading
• currency
• EU summit
• debt mechanism
• sovereign debt crisis
• ireland
• moody
• credit rating
• downgrade
• ifo business climate index
• germany eocnomy
• eur/usd
• gbp/usd
• usd/jpy
• aud/usd
• usd/cad
• eur/gbp