Euro momentum hinges on Italian Auction

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what should have been a tough day for the single currency turned out to be quite a prosperous one by the end of European trading. German CPI remained unchanged for April, which helped GBPEUR find its feet as the morning bell sounded, as no news is good news these days in Europe.

A nervous Italian auction of 1 year paper saw EUR6.5 billion raised with yields rocketing to 3.97% up from 2.34% in May. German yields rose by 8 points, an unfamiliar direction indeed for the 10 year bund. Cyprus announced that it will need help to soften the exposure of Greek debt and inject its banks with the tune of EUR4bn. You know things are bad when you find yourself going “ppffftt… that’s only pocket change” in your head. We saw Moody’s downgrade Spanish debt and place it on negative outlook.

That said EUR rallied hard against the GBP and USD right through, gaining a percentage against both by the final bell. GBPEUR fell to 1.2340 with EURUSD briefly hitting above 1.26. A combination of nervousness on behalf of the market and excessive short covering took responsibility. While EUR may have ‘talked its way through’ resistance levels, yesterday’s events are ominous indicators for the Italian bond auction for 10 year debt this morning. Traders are clearly still in a negative mind-set.

With contagion fears still looming, Italian PM Mario Monti spoke out reassuringly suggesting that Italy is perfectly capable of standing on its own two feet. While public debt figures might not be as strong as hoped, Italian banks are stable, but yields need to stay at manageable levels. Let’s hope Investors gobble this up, as a poor auction heading into this weekend could spell disaster when business re-opens next Monday.

US retail figures fell in May by 0.2%, as expected. US inflation is expected to fall this afternoon ensuring that QE and Operation Twist with get more face time, especially if jobless claims figures increase this afternoon. EURUSD could very well make a new home for itself and find support above 1.26.

The leader of the Greek Syriza party, Alexis Tsipras, decided to stir the pot yesterday by stating (or almost threatening) that regardless of the outcome this Sunday, funding will not be cut off to Greece and they will not be forced out of the Eurozone. This could be viewed as arrogance on the part of a disillusioned politician or the last minute war-mongering efforts of a shrewd strategist. If he was after a reaction he certainly got one, European officials stamped their authority on their Greek position, re-iterating that Greece will honour austerity commitments, perhaps exactly what Tsipras wanted the Greek public to take to heart for Sunday….

Italian auction this morning the main risk event today, followed by Eurozone inflation. US inflation and jobless figures follow after lunch.

Latest exchange rates at time of writing

Indicative Rates Sell Buy
GBPEUR 1.2320 1.2335
GBPUSD 1.5480 1.5505
EURUSD 1.2565 1.2580
GBPJPY 122.82 123.10
GBPAUD 1.5565 1.5590
GBPNZD 1.9935 1.9965
GBPCAD 1.5915 1.5940
NZDUSD 0.7750 0.7780
GBPZAR 12.9872 13.0435
USDZAR 8.3780 8.4300
GBPPLN 5.3020 5.3345
EURJPY 99.66 99.93

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