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The euro fell to the lowest level in a week against the dollar after Moody’s Investors Service lowered Spain’s credit rating, increasing pressure on European leaders to find a solution to the region’s debt crisis.
The shared currency weakened against most of its major peers as Spanish debt was downgraded to Aa2 by Moody’s, which also cut Greece’s ranking this week. Currencies of commodity- exporting countries weakened after China reported an unexpected trade deficit and crude oil prices fell. The pound stayed lower versus the greenback after the Bank of England left interest rates at a record low.
“The euro has been hobbled by negative risk flows,” said Boris Schlossberg, director of research at online currency trader GFT Forex in New York. “The greatest risk that the market is starting to fear is that the spate of downgrades within the euro zone and the expansion of the periphery credit risks could force the European Central Bank to possibly delay the rate hike, which is already priced into the currency.”
The euro may decline to as low as $1.3538 should it break below the key support level of $1.3978, the 78.6 percent Fibonacci retracement from its November peak, according to Karen Jones, head of fixed-income, commodity and currency technical analysis at Commerzbank AG in London.
“A break below support at the 20-day moving average at $1.3752 targets a move down toward $1.3538, the 55-day moving average,” she said.
European leaders are due to meet tomorrow having set a March 25 deadline to approve a “comprehensive” package of measures to end the sovereign-debt crisis. Moody’s said the outlook for the Spanish rating is “negative,” meaning the next change is most likely to be another cut.
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