Intraday Market Thoughts

S&P Downgrades Spain, Bank of Japan on Deck

by Ashraf Laidi
Apr 27, 2012 0:08

Euro fell after S&P lowered Spain's credit rating early in Asian trading. Earlier, sentiment improved on a Dutch budget deal and improved housing data despite another soft jobless claims report. The Bank of Japan decision looms large with the amount of asset purchases in the spotlight. The latest on Wednesday's Premium trades is below. EURUSD and gold longs hit all targets, while one of the CADJPY longs was stopped out.

S&P downgraded Spain at the most illiquid time of the day's just as Asian trading was set to open. Spain was lowered two levels to BBB+ from A with a negative outlook. S&P also lowered its growth projections and said debt will rise to 84% of GDP next year.

Spanish 10-year yields closed at 5.83% but that is certain to rise when the bond market re-opens at 0600 GMT. An extended move over 6% would be extremely damaging, especially if we break above 6.50%.

EUR/USD fell immediately on the announcement and has continued to decline, last at 1.3185. The market may not yet fully appreciate the potential negative consequences of the downgrade and the euro is likely to remain under pressure on Friday.

The euro made headway in US trading on renewed QE3 rumors and a 4.1% rise in March pending home sales compared to the 1.0% increase that was expected. The US dollar also came under some pressure after initial jobless claims were reported at 388K compared to 375K expected. It was the tenth consecutive jobless claims report that fell below estimates.

TONIGHT's BANK OF JAPAN DECISION is a major event risk for Asia-Pacific trading. Nikkei reported that 5 trillion yen in new easing is expected, without saying where it got the information. Earlier rumors suggested the BOJ would stand pat. There is no fixed time for the announcement but the past three decisions came at 0310 GMT, 0507 GMT and 0344 GMT, respectively. The 0507 GMT decision came with quantitative easing so a late announcement may be a clue about what is coming.

Our EURUSD premium long hit all targets and so did the gold long at 1657, while one of the CADJPY longs was stopped out. For the rest on those Wednesdays Premium Intermarket Insights & charts, click on here: Non-subscribers click here:



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