Moody's Downgrades Greece--Euro Already Coming Off

Currency in Crisis

News that Moody's cut Greece's credit rating to Ba1 from A3 is encouraging the market to do what it was already doing and that is paring the euro's earlier sharp gains.

This was a four notch downgrade, which reflects the slowness of Moody's to respond to developments. Moody's suggests its base case is for Greece's debt to GDP to stabilize near 150% by 2013. It recognizes that the EU/IMF package removes the actually impact should be minimal for a number of reasons. First, it is not the first rating agency to take away the country's investment grade status. Second, Moody's outlook is stable. Third, because of the EU/IMF package from early May, Greece is not expected to have to come back to the capital markets to raise funds any time soon. Fourth, the ECB already has indicated it will accept Greek bonds as collateral no matter what rating is assigned.

Ironically, the EU and IMF began talks earlier today in Athens to review and monitor the implementation of its budget plans. This was part of the terms negotiated for the 110 bln euro emergency fund.

The euro had already come off from its attempt at $1.23. Divergencies in the hourly momentum studies warns of additional near-term losses toward possibly $1.2150-$1.2200 into tomorrow.