Forex - EUR/USD extends losses as ECB optimism ebbs

Investing.com – The euro extended losses against the U.S. dollar on Monday, after a move by the European Central Bank to purchase Italian and Spanish government bonds failed to ease fears that the debt crisis could spill over to the region’s third and fourth largest economies.

EUR/USD retreated from 1.4425, the pair’s highest since August 1, to hit 1.4169 during U.S. morning trade, slumping 0.76% on the day.

The pair was likely to find support at 1.4054, Friday’s low and a two-week low and short-term resistance at 1.4425, the daily high.

The euro was higher earlier after the ECB said in a statement late Sunday that it “will actively implement” its bond-buying program, indicating that it will likely buy Spanish and Italian government bonds.

However, the news failed to ease fears over the risk that the euro zone’s debt crisis could spill over to the region’s third and fourth largest economies.

Meanwhile, concerns over the U.S. economic outlook were exacerbated after ratings agency Standard and Poor's downgraded the U.S. sovereign debt rating by one notch to AA+ from AAA after markets closed Friday.

The ratings agency kept the U.S. rating outlook at negative, suggesting a further downgrade could be possible within the next 12 to 18 months.

S&P said the debt ceiling deal reached by lawmakers to cut the federal deficit by an estimated USD2.1 trillion over a decade did not go far enough and “America’s governance and policymaking is becoming less stable, less effective, and less predictable than what we previously believed.”

U.S. Treasury Secretary Timothy Geithner sharply criticized S&P’s decision, saying the ratings agency “has shown really terrible judgment and they’ve handled themselves very poorly”.

Elsewhere, the euro was also down against the pound, with EUR/GBP shedding 0.38% to hit 0.8679.

Earlier Monday, market research group, Sentix said that investor confidence in the euro zone plunged 18.8 points to minus 13.5 in August, down from July’s reading of 5.3. Analysts had expected the index to ease down by 1.9 points to 3.4 in August.