Story of EU Debt Crisis Continues, Drowning Euro

The euro started this week very poor. The currency currently shows weak attempts to regain its footing, but most analysts have a very negative outlook for the euro in the near-term. The reason remains the same: sovereign-debt crisis.

Greece has taken the biggest part, so far, in reducing confidence in the shared European currency and continues to do so. Fitch Rating downgraded Greece’s credit rating, saying:

The â€™B+’ rating incorporates Fitch’s expectation that substantial new money will be provided to Greece by the EU and IMF and that Greek sovereign bonds will not be subject to a â€™soft restructuring’ or â€™re-profiling‘ that would trigger a â€™credit event’ and default rating from Fitch.

And there are more problems for Greece as the country seeks another bailout, but it’s very possible some members of the European Union will be against such aid. France joined Germany in demands for restructuring of Greece’s debt. Norway, which isn’t member of the EU, said that it’s not going to provide any more help to Greece.

There are other countries, besides Greece, that can cause pessimism about Europe’s economic health. Portugal and Ireland remain an issue. Spain revealed that it has “hidden debt” as many officially employed people weren’t receiving their payment and now are going to protests and demonstrations. Outlook for Italy’s debt rating was revised by Standard and Poor’s from stable to negative:

Standard & Poor’s Ratings Services today said that it has revised its outlook on the ratings on the Republic of Italy to negative from stable to reflect its views of the heightened downside risks in the government’s debt reduction plan. At the same time, Standard & Poor’s affirmed its ‘A+’ long-term and ‘A-1+’ short-term sovereign credit ratings on Italy. The transfer and convertibility assessment remains at ‘AAA’.

And story doesn’t end here as the economic data showed that the European economy is stalling. We are speaking not just about the indebted peripheral economies, but about major ones as well, including Germany and France. The reports of Markit Economics showed that the Purchasing Managers’ Indexes of Germany, France and the whole Eurozone unexpectedly dropped in May.

It’s easily understandable that there is not much optimism left for the 17-nation European currency. We’ll see some important macroeconomic reports later this week, including the reports about Germany’s GDP and inflation, and these reports may change the sentiment. But for now the outlook for the euro remains quite pessimistic.

EUR/USD currency pair may trade near 1.4000 for some time. When the currency drops down it can reach 1.3750. If the European currency would decide to go up, ignoring the sentiment and the fundamentals, it can encounter resistance at 1.4285 or at 1.4375.

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