Archived IMT (2010.05.03)

ECB SPURNS CREDIT RATING AGENCIES BY ACCEPTING JUNK status bonds from Greece after suspending the minimum credit rating required for Greek government-backed assets used in ECB liquidity-providing operations. Until today, the ECB had required that Greek (and other) Eurozone govt debt to have an investment grade rating by at least one of the 3 major credit agencies. With S&P having downgraded Greek debt to junk status last week, the ECB will not run the risk of seeing Moodys and Fitch doing the same and rendering Greek debt ineligible for ECB collateral. The decision constitutes an ECB EASING and a vocal rebuff to the agencies, especially after several bank officials criticized the timing of S&Ps junk downgrade. The final EU/IMF aid package is EUR 110 bln (not EUR 135 bln). EURUSD briefly broke above the Apr 15 trend line but quickly reverts to $1.3230. Pair is vulnerable to $1.3170, followed by $1.3120. Rebounds will be increasingly short-lived, especially as markets expect renewed ECB dovishness in Thursday's press conference. $1.3390 and $1.3530 remain the major resistance levels.