Forex Market Review – Euro weakens as Spain downgrade raises possibility of bailout

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Euro extended losses against the dollar during the European session on Friday as risk sentiment was off following Spain’s credit rating downgrade by Fitch, which resulted in pushing up Spanish bond yields.  There is speculation that the Spanish government is going to request a bailout in order to be able to prop up its troubled banks.

 

Meanwhile, early in the session a string of soft economic data on German , Italian and French trade added to the gloomy mood. German exports fell by 1.7 percent in April. All this highlights the deepening debt crisis in Europe.  EURUSD opened in Europe at 1.2583 and fell to 1.2446.

 

Sterling was weaker against the dollar, extending a decline into the European session. UK data today focused on inflation, with PPI weaker than expected, falling ‐2.5 percent on inputs and ‐0.2 percent on outputs. GBPUSD opened the session at 1.5479 and edged down to 1.5405.

 

Yen is stronger due to higher risk aversion today. USDJPY is down 0.3 percent since yesterday’s close, touching a low of 79.10 in early European trading. Dollar fell after U.S. Fed Chairman Ben Bernanke’s comments yesterday. He disappointed markets by not signalling further stimulus to aid the failing U.S. economy. EURJPY hit a low of 98.52, down over 1 percent on the day so far.

 

The Canadian dollar is weakening against its U.S. counterpart heading into the North American open, which is pushed USDCAD to 1.0353 from 1.0314. The main driver behind the loonie weakness is upcoming employment data. The forecast is for a drop in the number of jobs added in Canada in May. (10k versus April’s 58.2k).