Forex US Review – Euro falls after Italy, Spain downgraded

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EURUSD rose to its highest level in a week hitting 1.3523 after data showed U.S. employment grew more than expected in September, raising optimism about economic recovery. However, later in the US session, news came out that Fitch ratings agency cut Italy and Spain’s credit rating and euro tumbled as investor focus immediately turned back to euro zone sovereign debt problems and the risk for contagion. EURUSD touched a low of 1.3360.

GBPUSD was lifted to 1.5645 as the U.S. session began due to improved risk tolerance after the better than expected NFP report from the US which raised optimism about the economic recovery of the world’s largest economy. Cable soon pared gains to fall sharply to 1.5541 after Fitch announced it cut Italy and Spain’s ratings.

USDCHF bounced off lows of 0.9145 and surged to 0.9280 as news hit investors that Italy and Spain were downgraded. Investors immediately turned to the safe haven and liquid US dollar. The Swiss franc used to be the safe haven of choice until September when the SNB introduced measures to curb franc strength and set a floor of at 1.20 francs to the euro. EURCHF has been rising all week as speculation is rising that the SNB may change the current cap to 1.30 francs in order to further weaken the Swiss currency.EURCHF hit a session high of 1.2419.

The Canadian dollar hit its strongest level in more than a week versus its U.S. counterpart after jobs data showed Canadian and American payrolls climbed more than forecast. Canadian employment rose by 60,900 in September after a decline of 5,500 in August and the unemployment rate dropped to 7.1 percent, the lowest since December 2008. USDCAD touched a low of 1.0234 after the US non-farm payrolls but soon climbed to 1.0410 after news of Italy and Spain downgrades dampened risk appetite and weakened the risk sensitive loonie.

USDJPY opened the US session at 76.66 and remained strong through out the session, hitting as high as 76.90 following the positive US jobs data which strengthened the dollar against the yen since there is no longer concern that the US labour market is getting worse or that the US is heading to recession. Also Bank of Japan Governor Shirakawa said in a news conference today that the yen’s rise was having a huge impact on the economy, keeping alive the risk of intervention by the BoJ, hence yen stayed weak today against most counterparts, except the euro, which fell after Italy/Spain downgrade. EURJPY fell to 102.60 from an early session high of 103.85.