Forex Market Review – Euro falls after Italy bond auction fails to impress

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The bullish sentiment resulting from Thursday’s somewhat soothing words from ECB President Mario Draghi has begun to fizzle out today. Euro retreated from highs after the Italian bond auction today. The market shrugged off strong euro zone trade balance data that showed a huge trade surplus in November at 6.9 billion. The Italian debt sale met the upper spectrum of the target range resulting in the sale of 4.75 billion euros ($6.1 billion) of government bonds. However the Italian auction failed to surpass the performance of the Spanish bond sale yesterday which doubled its target amount. Italian bond yields dropped though which helped support the euro from weakening further. EURUSD fell from an earlier high of 1.2877 to 1.2721.


The single currency will probably remain under pressure as there are still concerns regarding the outlook for the euro zone and uncertainty surrounding the debt crisis. Hopes that Greece may soon reach a deal with private creditors for a voluntary debt exchange initially helped support the euro early today. Fresh new long positions will be limited until there is more news about a deal in coming days with private creditors for a 50 percent haircut of their Greek sovereign bonds.


The euro was down 0.9 percent against the yen at 97.98, holding above this week’s 11-year low of 97.26.


Sterling weakened after UK economic data. British factory gate inflation fell more than expected in December, increasing expectations that the Bank of England will inject more stimulus into the struggling economy soon.  Sterling fell to a two-week low against the euro following the data but soon rebounded against the broadly weaker single currency. EURGBP fell to 0.8310 from 0.8375 while GBPUSD fell to 1.5304 from 1.5407.


Dampened sentiment helped lift the safe haven US dollar. USDCHF rose to 0.9477 from 0.9405 while USDJPY rose to 76.80 from 76.65. The Canadian dollar failed to strengthen despite better than expected trade data showing a growing surplus. USDCAD rose to 1.0202 from 1.0161.