Wednesday, October 17 12:14:18
The euro hit a one-month high against a weak dollar today, lifted by Moody's rating agency affirming Spain's investment grade rating and growing speculation Madrid will ask for a bailout next month.
Moody's rating, which is contingent on Spain implementing fiscal reforms and the European Central Bank stepping in to buy peripheral bonds, soothed immediate concerns about a downgrade to junk status. That pushed Spanish yields lower before an auction on Thursday and helped the euro.
The euro was up 0.6 percent on the day at $1.3130, its highest since mid-September. Strong resistance was seen at $1.31729, the four-month high set on Sept. 17, with stop-loss buy orders cited above $1.3180 and reported option barriers at $1.3200.
Traders cited strong bids from sovereign investors at $1.3080 but most market players were cautious about driving it above $1.3200 without a definite aid request from Madrid. The euro has been supported in recent weeks by bets that Spain will eventually request a bailout, a move that would open the way for the European Central Bank to buy Spanish debt and help lower borrowing costs. Talk that a line of credit could be extended to Spain has also boosted the euro.
"It's supportive that Spain avoided a downgrade but the bigger driver is more expectations that Spain will soon require some form of financial support from Europe," said Lee Hardman, currency economist at Bank of Tokyo-Mitsubishi.
The timing of such an aid request, however, remains unclear.
Hardman said the euro could squeeze as high as $1.35 after a Spanish bailout request but may falter there if concerns resurface that euro zone policymakers are being complacent in tackling the long-running sovereign debt crisis.
Expectations of progress in addressing Greece's problems at a European Union summit on Thursday and Friday were low. A German official, speaking on condition of anonymity, said he did not expect any substantial discussion of Greece at the summit, adding that he also did not foresee an interim report from international lenders on the Greek economy. (C ) Reuters