The EUR/USD pair continued its see-saw action, with the Euro rallying rather strongly today, pushing above the $1.40 level, climbing to its highest level since November 8th as it set an intra-day high near $1.4053.
For a technical analysis look at the EUR/USD pair, see today’s Technical Update: EUR/USD is a Bullish Breakout Targets 1.41, 1.4280
The Euro is rallying on the back on interest rate expectations, even as there are strong concerns about what will happen with sovereign debt problems, and some recent comments from ECB officials that an interest rate increase in April may not be assured.
This week we saw Portugal’s government debt rating downgraded by Moody’s, adding to sovereign debt concerns and keeping the EUR/USD below the $.140 level in yesterday’ European session. We did come out of the EU Summit over the weekend with some tentative positive steps forward including expanding the EFSF to buy bonds on the primary market, lowering the interest rate on Greece bailout loans, and countries signing onto a pact of competitiveness.
In today’s session, we saw Spain hold a debt auction, a key test for European bond markets. The auction of €4.13 billion of 10-year and 30-year bonds went relatively smoothly.
From Bloomberg: Spain Sells Bonds in First Test of Confidence in Rescue Fund: Euro Credit
“Demand rose versus the last time securities of similar maturity were offered Feb. 17, though the auction missed the maximum 4.5 billion-euro target. Spanish bonds were steady after the sale. Spanish 10-year yields rose three basis points to 5.20 percent today and were little changed after the auction.
The so-called bid-to-cover ratio for the 10-year debt was 1.81, compared with 1.54 last time securities of similar maturity were sold on Feb. 17. The 10-year bonds were sold at a yield of 5.162 percent and the 30-year debt at 5.875 percent. Spain last sold 10-year bonds on Feb. 17 at a yield of 5.2 percent. The Treasury sold 30-year debt the same day at a yield of 5.96 percent.”
The most recent developments will try and see if market particpants will be more discerning when it comes to the bonds of nations that are not as likely to need rescue – Spain and Italy – compared to ones that seem headed down that path – Portugal.
In Spain, the outlook remains murky, mainly as the country undertakes a re-organization of its banking system. Spanish banks have been hard hit as a result of the collapse of its housing market. Therefore while Portugal’s fiscal situation seems dire, the situation in the private banking sector in Spain has the larger potential for spreading contagion.
Still at this point, the euro-zone seems to be containing its sovereign debt concerns, and traders are likely to continue focusing on the interest rate differentials, as the ECB is far ahead of the Fed in terms of tightening policy.
Nick Nasad
Chief Market Analyst
FXTimes
Information and opinions contained in this report are for educational purposes only and do not constitute an investment advice. While the information contained herein was obtained from sources believed to be reliable, author does not guarantee its accuracy or completeness. FXTimes will not accept liability for any loss of profit or damage which may arise directly, indirectly or consequently from use of or reliance on the trading set-ups or any accompanying chart analysis.
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