Forex - EUR/USD soars on Moody's threatened U.S. downgrade

Investing.com - The euro soared against the greenback Tuesday, hitting a 4 month high, after rating’s agency Moody’s issued a warning that it may slash the U.S. credit rating if a debt solution is not instituted.

EUR/USD hit 1.2860 during U.S. afternoon trade, up 0.80% on the session

The pair was likely to find near-term support at 1.2753, the session low and resistance at 1.2903, the high of May 14.

The single currency hit a fresh session high against the greenback after Moody’s announced that it could downgrade the U.S’s triple-A rating if budget negotiations for 2013 do not result in policy measures which will reduce the country’s debt.

The greenback also remained under broad selling pressure amid speculation that the U.S. Federal Reserve may implement a third round of quantitative easing after its upcoming policy meeting, which concludes on Thursday.

Government data on Friday showed that the U.S. economy added fewer-than-expected jobs in August, increasing the likelihood that the Fed will act to strengthen the U.S. economic recovery.

Earlier Tuesday, official data showed that the U.S. trade deficit widened less-than-expected in July, holding just above the 18-month low gap hit in June.

The U.S. trade deficit widened to a seasonally adjusted USD42.0 billion from a downwardly revised deficit of USD41.9 billion in June. Analysts had expected the U.S. trade deficit to widen to USD44.0 billion. 

Demand for the single currency continued to be underpinned by expectations that Germany’s constitutional court would find that the euro zone’s new bailout fund, the European Stability Mechanism, was not a violation of the German constitution in a ruling to be delivered on Wednesday.

The euro was higher against the pound, with EUR/GBP up 0.27% to 0.8002 and against the yen, with EUR/JPY climbing 0.12% to par at 100.00.

Elsewhere, Portugal’s finance minister said earlier that Lisbon and the Troika reached an agreement on revisions to the country’s debt and deficit targets, following the latest review of the country’s EUR78 billion bailout program.