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By FXCompass — Wednesday, 28 April 2010

The EUR/USD fell below yesterday’s twelve-month low to reach 1.3115 right after S&P announced the downgrade of Spain’s credit to AA from AA+.

Considering yesterday’s downgrades of Portugal and Greece, the S&P’s aggressive moves appears to be a tentative to catch up with a lack “clairvoyance” in the previous months. But even if the downgrades come right when EU leaders are multiplying efforts to bring back confidence in the eurozone, the moves could be less damaging to the euro than if they were pushed at a later date.

The euro could drop to as low as 1.3000 before finding a support.

EU Leaders Rush for Greece

Going along the IMF and the ECB, German Chancellor Angela Merkel finally accepted to speed up talks about the Greece bailout on Wednesday.

"It's absolutely clear that negotiations by the Greek government with the European Commission and the IMF now need to be accelerated," Merkel said. "This is about the stability of the euro overall, and we won't avoid this responsibility, but the challenge is for Greece to accept an ambitious [savings] program that can restore markets' trust in Greece."

On the other hand, International Monetary Fund Managing Director Dominique Strauss-Kahn was able to relieve some of the pressure on Greek bonds when he suggested the aid package might be extended to €120 billion, enough to last for three years.

The two-year Greek note yield dropped to 16.62 percent after a spike to as high as 26 percent.