Euro hovered near a two-year low reached against the dollar as the market is being cautious ahead of a key Eurogroup meeting where EU finance ministers are gathering in Brussels today. Investor confidence from the EU summit deal has faded as it realizes that EU promises remain difficult to deliver upon. Italian and Spanish yields jump higher this morning while Germany auctioned six month bills at a record low yield of -0.03 percent.
EURUSD reached a new 2-year low of 1.2255 in early Asian trading but manages to edge up to 1.2315 in reaction to comments from the European Commission. It said that direct recapitalisation of banks will not need sovereign guarantees once the new ESM euro zone rescue fund will be in place.
Sterling is little changed from Friday and trading in line with the broader market as most of the major pairs remain contained within a narrow range. GBPUSD traded between 1.5469 and 1.5512. Lack of key U.K economic data will keep the pound subdued.
Yen is slightly stronger than the dollar and up against all of its major peers despite weaker Japan current account and machine orders data earlier today. Risk aversion due to market uncertainty is driving safe haven flows to the Japanese currency. USDJPY opened in Europe at 79.69 and drifted lower to 79.50. Focus this week will be on the Bank of Japan on Thursday July 12. There are mixed expectations for more easing by the bank.
Looking ahead to the North American trading session, there are no key risk events on the economic calendar. Focus will remain on the Eurogroup meeting and a speech by ECB President Mario Draghi.
