The euro rose sharply against the dollar in the European trading session after being boosted by a solid response to a Spanish debt auction which spurred an increase in risk appetite. The Spanish government sold 6.61 billion euros of bonds which was more than its target. EURUSD hit a new two-week high in reaction to the news, reaching 1.2923 from a European session open level of 1.2857.
Adding to positive sentiment is optimism that the IMF could boost its resources to help countries deal with the euro zone debt crisis as well as hopes over talks to avoid a chaotic Greek default were adding to the positive tone.
Meanwhile early today the European Central Bank released its monthly bulletin which had a slight upbeat tone in saying that there were tentative signs that economic activity in the euro zone was stabilizing, albeit at low levels.
The euro has moved further away from Monday’s 17-month low of $1.2625. The market is becoming less short euros than it was in the past couple of weeks but it is still short and there is scope for a continuation of a short squeeze as more investors who were short the euro will unwind their short positions.
The euro surged against the yen, with EURJPY climbing to 99.24 from 98.54. The dollar has been range bound all week against the yen and was trading in the upper 76.80 range. The British pound tracked gains in the euro and rose against the dollar on risk appetite. GBPUSD edged up to 1.5464, compared with an early session low of 1.5414.
This week’s recovery in the euro helped push the dollar index to two-week lows at 80.237, down 0.3 percent and recoiling further from a 16-month peak of 81.784 hit on Friday. The focus will be on U.S. consumer price index data that will be released later in the day.