The Forex market centered on Europe again, bashing the Euro down against the majors as risk-on sentiment prevailed throughout the week.
Numerous headlines contributed to Euro's decline culminating on Friday.
The week started with Moody's downgrade of 13 Italian banks, following its downgrade of the Italian government's credit profile during the prior week.
After the German lower house deliberation and eventual approval of granting financial aid to Spain, the Eurogroup ministers pushed through with a consensus on Friday, approving the Spanish bailout. Ministers agree that "providing a loan to Spain for the purpose of the recapitalization of financial institutions is warranted to safeguard financial stability in the euro area as a whole."
For its part, Egan-Jones cut Spain's rating on Friday for the sixth time since mid-April, from CCC+ to CC+, putting more pressure on the country's credit rating and pushing it further near junk territory. Spain could eventually be rated at C and the probability of the country defaulting on 2013 is 35%, adds Egan-Jones. Spain also cut its 2013 economic forecast on Friday.
Meanwhile, the eastern Spanish region of Valencia said early Friday that it would need help from the government to refinance its burgeoning debt. This news pushed yields on 10-year Spanish bonds back above 7% and the Spanish stock market index IBEX went sharply lower.
As a sign of growing discontent on the ongoing issues, hundreds of thousands took to the streets on Thursday evening, after more than a week of public protests. Unemployment rate in the country is above a whopping 24%.
Continuous downward pressure hurt the Euro, forcing it to print multi-year lows against several currencies, including USD, GBP, JPY, and AUD. EURUSD spent most part of the week making 100-pip swings as traders made positional adjustments during and after Fed Chairman Bernanke's two-day testimony on the US Senate. EURUSD ended the week lower, dropping to 1.2144, its lowest since June 2010. 1.1876 is the 2010 low. In other EUR crosses, EURJPY hit 95.36 Friday, its lowest since November 2000.
The other majors followed the week's volatility, but were less affected compared to the EUR crosses. AUDUSD made a relatively steady march upward to end the week above 1.0400. AUD was one of the major beneficiaries of Euro's decline, as global investors go in search of yield from safe currencies.
Among the EUR crosses, EURAUD was the main mover posting a 12% drop. EURGBP made a 1.3% drop (reaching the lowest level since October 2008), while EURJPY ended with a 1.9% drop, reaching the lowest level since November 2000.
EURCHF stayed in a lackluster 5-pip range all week, except for a blip up-move towards 1.2014. In contrast, other CHF crosses trod higher with AUDCHF gaining more than 2%.
It seems far from over so expect more volatility in the coming weeks.