Forex Europe Review – Soaring Italian bond yields sink Euro further

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The Euro dropped to a one week low against the Dollar as U.S. debt concerns were put on the back burner and debt issues closer to home have come to the forefront. Today’s Italian bond auction saw yields soaring to 11 year highs, raising concerns that the E.U. debt plan from last week’s summit may not be sufficient to prevent debt contagion to the rest of the Euro zone. EURUSD dropped to 1.4253 from the session open of 1.4366. Euro’s fall was accelerated in the half hours before the end of the session following better than expected U.S. jobs data that boosted the Dollar slightly.

Sterling jumped against the Euro following the Italian bond sale which dragged down the Single Currency. EURGBP fell 67 pips from 0.8802 to 0.8735. Meanwhile, Cable was very volatile during the session, following a flat Asian session, breaking out of the tight range, and shadows on the chart candlesticks hitting highs of 1.6363 and low of 1.6293. The Pound was initially supported due to the weak Dollar that is plagued by the impasse in U.S debt talks, but then the British currency dropped sharply following poor U.K. retail sales data, which added to the other weak data this week, indicating economic recovery is still sluggish.

The Swiss Franc has been trading sideways all weak hovering around record levels against the weaker U.S. Dollar as its safe haven status boosted demand. In the European session today USDCHF touched a low of 0.7989 which is a new record low. The Swissie also gained against the battered Euro, which plunged down by 115 pips as EURCHF bottomed at 1.1422 following Italy’s debt auction which saw bond yields surge.

The Yen is one of the preferred currencies at the moment compared to the Euro and the Dollar, both haunted by debt issues on each side of the Atlantic. Along with the Swiss Franc, the Japanese currency is perceived as a safe haven until a clearer picture arises out of the U.S. stalled debt talks. USDJPY hovered around the four-month lows, touching a session low of 77.62 and a high of 77.84, with USD getting a small boost at the end of the session after better than expected jobs data. Against the Euro, Yen gained more as EURJPY plunged to 110.81 from 111.81 due to the Italian debt auction dragging down the Euro.