The fabled Irish luck ran out today, as Moody’s continues its “Trashing The European Sovereign Tour ” via a downgrade of all things Leprechauns. The downgraded status included a negative outlook, which is Moody’s way of saying it’s not done raining downgrades on the island.

The downgrade itself is not unwarranted, considering the real funding crisis in Ireland and combined with the fact that the firebreak around Italy has crumbled like the mortar in an old Roman aqueduct. That is, it is not unexpected but still VERY unwelcome.

The impact of the downgrade will be larger than most believe in my opinion.  The implication is that anyone on the edge of Europe is now due for a real round of downgrades. It means that nations like Belgium, Italy, Spain and France should take notice.

The downgrade was a bit of a shot across the bow of Europe, as it says that the rating agencies are going to try and rebuild their reputation by making the hard calls in Europe, at the expense of Europe.

Moodys had warned the market a few weeks ago, it was looking to down grade French Banks. It doesn’t take a genius to see that if Moody’s is going to live up to its NAME, it has a lot more work to be done. By this fall, we could see ratings in Europe falling like the leaves off of the trees.

The FX markets will feel this, as $FXE $FXB, $DXY, $FXF, $GLD will feel the implication of downgrade hot money positions itself for the next round of downgrades. Moody’s isn’t finished yet, and more nations will find their borrowing costs go up, their retirement funds holding shrinking assets, and their margins squeezed.

Regaining ones reputation is never easy, Moody’s has a lot of downgrades to go before its considered on the ball. It will be interesting to see if Europe can survive Moodys reign of transparency.