Market fears surrounding the Euro-zone are liable to increase further in the short term with expectation of further credit-rating downgrades and speculation that there will need to be ECB-led bailouts to prevent a debt default. The Euro will also tend to be undermined by the general deterioration in risk appetite. Given a fundamental lack of confidence in the dollar, Euro losses should be contained, but a further downward correction to the important 1.4625 level is realistic over the next 24 hours.
The Euro stalled above the 1.4850 level in early Europe on Tuesday and then weakened steadily during the day on a combination of negative factors for the currency.
The Euro was undermined significantly by a Fitch downgrading of the Greek sovereign credit rating to BBB+ from A and there was also a negative outlook for the rating. There was a further widening of Greek bond spreads over German bunds and fears over the outlook for the weaker Euro-zone economies are liable to intensify, especially with speculation over the possibility of a bond default.
The German economic data was weaker than expected for the second consecutive day with production falling by 1.8% for October after an upwardly-revised 3.1% increase the previous month. There were also renewed fears over the Dubai situation which tended to undermine global risk appetite and trigger some defensive dollar demand.