• France and Austria cut to AA+, Italy, Spain, Portugal downgraded cut two notches each–EU officials after S&P issued 12-hours notice
  • Greek debt restructuring talks break down
  • US trade deficit rises to $47.8 bln in November, much larger than expected
  • Greece may introduce collective action clauses on existing government debt
  • Fitch revises South Africa outlook to negative from neutral
  • University of Michigan consumer sentiment jumps to 74.0 in January from 69.9 in December
  • CNBC says told by Fed considering more QE; discussion at January FOMC, action could come this spring
  • Ifo’s Sinn: Greece should leave euro zone; ECB at risk to Greek debt
  • LCH raises margins on Italian bonds
  • CFTC data shows record short in EUR futures contract
  • S&P 500 falls 0.5% to 1289; Milan down 1.2%
  • US 10-year note yield falls 5 bp to 1.87%; Italian yields unchanged on ECB buying after trading in 35 bp range
  • WTI rises $0.20 to $99.30; gold falls $12 to $1639

One of the more volatile session in weeks as EUYR/USD slumped from the 1.2780 area in early New York to a low of 1.2624 on news that France, Italy, Portugal, Spain and others had been downgraded by S&P. The impact on the EFSF’s ability to raise funding is the main concern over the ECB move.

More importantly, Greek debt restructuring talks have broken off with the two sides far apart on the interest rate that credits will be paid on the bonds issued to replace existing debt. Without a restructuring, the EU/IMF will not finance a second bailout package for Greece and they will default before the end of March.

EUR/USD bounced from the important area of support extending from 1.2588 through 1.2625 with the market breathing a modest sigh of relief that France was cut only one ratings notch by S&P. Rebounds we’re limited to 1.2690/95.

EUR/CHF extended its losses after the sovereign debt and Greek restructuring talks news. Large bids in the 1.2090 area were filled-in and we fell as low as 1.2062.

Commodity currencies were belted this morning as the euro slumped and the dollar saw a broad safe-haven rally. Jitters cooled as the day moved along. AUD/USD recovered from 1.0233 lows to end at 1.0315.