Standard & Poor downgraded the credit ratings of 9 European countries today. France & Austria received downgrades from AAA to AA+. For now Germany still maintains a AAA credit rating.
Other countries downgraded were Malta, Slovenia, Slovak Republic, Cyprus, Italy, Portugal and Spain. This creates an overall negative economic outlook for the Euro in the near future.
Greece is still struggling to avoid default of its debts, but there is little doubt that Greece will default in the near future.
Overall Impact on Forex Prices
The S&P downgrade caused EUR based currency pairs to close down for the week. The downgrade confirmed trader sentiment that the EUR is weakening. This downgrade didn’t really shock anyone, the writing has been on the wall.
While this announcement is evidence of a mid term downtrend, shorting the EUR short term isn’t necessarily the best course of action.
There are other issues which are being temporarily overlooked by the media. The US had it’s credit downgraded back in August. With all the attention on the EUR right now, there are news items “waiting” to happen for other countries that will surface soon.
What Does This Mean for Traders?
It can be interesting to observe announcements by countries & financial corporations, but it doesn’t tell the complete story. By the time the news gets to reporting something, the effect has typically already been reflected in the price data.
Technical Analysis prevents us from getting too caught up in what we hear in the news.
The EXCITING thing about big news stories is that it creates alot of VOLATILITY. Nobody really knows what is going to happen. The news simply reports what has just happened.
I don’t try to predict what will happen in the future as a forex trader. Volatility benefits us because we can mathematically gain an advantage from trading when there is confusion in the market. Currently there is ALOT of confusion…so there is ALOT of OPPORTUNITY.
I’ll be sharing more about how you can capture this OPPORTUNITY in upcoming blog posts, be sure you’re subscribed here so you get to learn more about how to profit from volatility.