Greece could still exit the euro for its own good, Oanda

Sovereign downgrades, especially the one recently announced by Moody’s on Spain, create a more risk-averse environment for investors, affecting in turn the cost of capital and sentiment in the market, according to Dean Popplewell, currency analyst at foreign exchange platform Oanda.

“Each time a downgrade is announced on a peripheral European country, it is anticipated by a change in risk appetite. The latest Spain’s downgrade has been well received, but you should check who is really buying local debt. Is it an investor or a local bank?” he asks.

Since the European Central Bank announced its OMT programme, markets have started to better react to downgrades.

On Spain, Popplewell notes that markets have already anticipated an aid request. “The feeling is that Spain will ultimately seek for help, but to a more limited extent compared to what anticipated,” he says.

This has also triggered a positive sentiment on the euro, which dragged over the last weeks.

According to the strategist, markets are still fairly short on the euro.

“I would bet on the euro at the moment. European data suggest politicians are handling the Spanish crisis well and euro coult trade around 1.35 in a medium target,” he adds.

Meanwhile, Greece remains an unknown factor.

“Social issues are still a crucial factor which could still require Greece to step away the European Union and the euro. The chance that Greece will step out for its own good is still there,” he says.

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