We saw limited reaction when the market reopened following the Standard & Poor’s rating cuts to 9 Euro Zone member economies (including France, Italy and Portugal) two weeks ago; so Fitch’s move on five Euro-area countries would naturally elicit little reaction from euro traders. The most notable move they would make was the cut to Italy as it was accompanied with an assessment that it was “especially vulnerable” to the spread of the regional crisis. Against recent doubts by German Chancellor Merkel that Greece could avoid a default, ECB President Draghi’s reflections that the central bank’s massive liquidity injection (LTRO) has yet to translate into economic growth and rising fear that Portugal could prove claims that Greece was a unique situation deserving of accommodation; the euro continued to climb this past week. In fact, the currency’s rebound has even outpaced our benchmark for risk appetite: the S&P 500. Whether a fundamental driver is critical or not depends on the belief of the masses. For now, the aforementioned risks exist beyond the horizon of concern. In the meantime, there is a correction to extend.
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