It is going to be a tough week for the EUR.
Trichet is expected to be softer in his tone and the EUR will stay under pressure into the ECB. If he is not dovish, EUR will be still under downward pressure, as the market will increasingly discuss the erosion of ECB credibility.
Separately, the comments from S&P – attached and below – about how to rate a joint Euro bond are very interesting, as it lays out the conditions to avoid a rating from Greece. So, it is not just about saying a Euro bond will be launched but how it is structured is what matters.
A key takeaway from this article is that – ‘S&P’s Kraemer said S&P wasn’t in any talks with the European Union on a potential issue of euro bonds.’ We know Germany isn’t keen but it doesn’t appear that the rating agencies aren’t involved in any pre-lim stages. This says just how far away the existence of such a bond actually is.
Paul Mackel
HSBC FX Strategy