Euro Slides on Portuguese Downgrade & Latest Trades

A Portuguese downgrade dragged the euro lower in generally quiet trading. The Swiss franc appears to have regained its footing as US stocks declined for the first time in six sessions.

The lone market-moving news was from Moodys who slashed Portugals rating to Ba2, down four notches and below investment grade. The move is ominous and suggests a very high possibility Portugal will need to follow Greece toward a second bailout. EUR/USD fell as low as 1.4397 but has rebounded to 1.4426. See the earlier IMT for more.

As Ashraf explained, the euro was somewhat spared by expectations of a rate hike on Thursday. Traders looking to exploit further sovereign concerns in Europe should look to the Swiss franc. It has rallied broadly and will not be overwhelmed by the ECB decision. The commodity currencies were all lower versus CHF on Tuesday after 5 days of gains.

Another trade that was boosted by the flight to safety from Europe was gold as it surged $30 to $1515. Ashraf called for gold longs on Monday and the precious metal now rests just below the initial target.

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The upcoming data calendar remains scarce. The lone release of note will Japans May preliminary leading indicators report. A rebound to 99.8 from 96.2 is expected but the report is unlikely to have any market-moving impact. In Mondays session, rumours circulated of a Chinese interest rate hike this weekend. Moodys also spooked markets with a report saying local government loans may default at a 10% rate. The fallout may dictate trading on in the hours ahead.