Euro Soars To New Highs Versus The Dollar & Yen

The Euro soared to a 1-month high against the US Dollar and Japanese Yen on Wednesday after Moody's kept Spain's credit rating in the Investment grade for the time being at least.

This moved eased some concerns amongst traders as the single currency continued to rise although the Spanish rating remains just one notch above junk.

The steps taken by Moody's also serves as relief for Spain, which is due to sell up to 4.5 billion Euros of bonds at an auction coming up tomorrow.

The Euro rose earlier today against most major peers. Moody's Investors Service has held Spain's rating at investment grade and investors focus on the European Union (EU) leaders meet tomorrow in Brussels.

As I mentioned recently, expectations are growing that before the EU Summit, even as soon as today, Spain will request aid.

Interestingly, German has shifted its policy somewhat as it now appears open to support Spain in such a request, with German officials openly now indicating an easing of German resistance to a full sovereign bailout for Spain.

On Tuesday, Moody's announced that it has assigned a negative outlook on Spain's Baa3 sovereign debt after it confirmed a review for possible further downgrade of Spain's rating that it had initiated in June.
On Thursday, Spain will sell bonds due in 2015, 2016 and 2022 after Tuesday's better than expected debt sale, which has seen the nation's 10 year yield fall by one basis point to 5.81%. I expect that yields will decline further and what this means, is that this would be positive for risk sentiment. It also means that the Dollar could be primed to decline further.

In fact, many analysts predict that there is a possibility that the Euro may rise to the highest level against the Dollar in more than five months, in the short to near term. A timely request for aid from Spain would be Euro positive.

The Euro earlier today had gained 0.3% to $1.3095 and hit 103.52 Yen, the highest since September 19th. The Dollar fell by 0.3% to 78.68 Yen.

The Dollar was down against most of its major counterparts, ahead of data that may show that new housing construction in the U.S. had climbed in September and, has resulted in curbed demand for safer assets.

The U.S. Commerce Department is to releases its report on housing starts today. The data is expected to show that new construction rose to a 770,000 annual pace in September from 750,000 in August.