Forex Market Review – Euro remains weak after S&P downgrades; markets await French debt auction

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Standard & Poor’s decision on Friday to downgrade the sovereign ratings of nine European countries including France and Italy has dampened investors risk appetite, increasing concerns over the euro zone debt crisis. Added to this are worries of further downgrades by other ratings agency Moody’s as well as a risk of a downgrade to the European rescue fund, known as the the EFSF.

The euro opened this week slightly lower than Friday but remained steady and supported by news that after the European Central Bank was said to buy Italian and Spanish debt to cap yield increases.

But markets are mostly consolidating and the EURUSD is trading sideways as investors wait on the sidelines for the French debt auction later today when France is planning to sell 8.7 billion euros of debt. The focus will also be on other debt auctions later in the week by Germany and the EFSF. Eyes are on Greek talks as well regarding a debt swap deal. Negotiations between private creditors and the Greek government on a voluntary restructuring of government borrowings stalled on Friday.

Markets are also calm this Monday due to the Martin Luther King holiday closing markets in the United States.

The main euro crosses turned slightly upwards in the European session open but in the long term there is bearish pressure as ECB rate cuts are expected and more downgrades may come.

EURUSD opened in Europe at 1.2653, up from the Asian session open of 1.2633, which was close to the 16-month low hit on Friday due to the S&P downgrade news. Session highs were hit at 1.2680. EURGBP rose to 0.8282 from an earlier low of 0.8253.

Against the Swiss franc, euro edged up to1.2097 from 1.2064. Markets are keeping an eye on the Swiss National Bank’s determination to defend its 1.20 CHF peg to the euro.

Euro moved off an eleven-year low against the Japanese yen to climb to 97.38 from 97.02. Japanese Finance Minister Jun Azumi revealed concerns about the falling euro.

In other currencies, GBPUSD traded in a range in the upper 1.5290 level while USDJPY traded on the downside to 76.70 versus the European open of 77.04.  The Canadian dollar strengthened due to a rebound in oil prices today, with USDCAD falling to 1.0188 from 1.0251.