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Credit rating agency Moody’s announced that it’s putting Spain under review for a downgrade  – Spanish bonds might lose their AA1 rating, which is one level under the highest. This is taking its toll on the Euro.

Spanish bond yields for 10 year notes opened higher, at 5.56%, already very close to the peak reached at the height of the Irish crisis. While the bond buying efforts of the ECB focused on Portugal, the “next domino”, Spanish bonds ticked higher every day.

The Spanish government says it doesn’t need aid. The current EU / IMF bailout fund doesn’t have the sufficient capacity for bailing out Spain. Here’s what Moody’s thinks:

“Moody’s does not believe that Spain’s solvency is under threat and in its base case assumptions does not expect the Spanish government to have to ask for EFSF liquidity support,” Moody’s lead analyst on Spain Kathrin Muehlbronner said in a statement.

OK, they’re not in danger of insolvency, but the fact that they say it, isn’t too good.

While there was lots of optimism in Europe at the beginning of the week, it now makes way for fear.

EUR/USD currently trades at 1.3320. For technical levels, see the EUR/USD forecast.

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