Well-Received Italian T-Bill Auction Revives Euro

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With no major U.S. economic data today, traders turned their focus on the European Central Bank and European debt auctions. Demand for higher risk assets increased for the first time in five days on the news that Italy had sold the maximum amount of debt offered for sale at its auction. This event reduced investor risk aversion, pressuring the U.S. Dollar while supporting foreign currencies and commodities priced in dollars.

Traders reacted positively to the news of the sale of 8 billion Euros of Italian Treasury bills. The up move also suggests traders were relieved by the news because it put a little clarity back into the market after 5 days of indecision.

Even though European Central Bank Governing Council member Luc Coene reportedly said bond purchases won’t solve Spain’s and Italy’s economic struggles, today’s action suggests that there is some optimism that the two countries will take measures to shore up their economies before the central banks take decisive action. The ECB wants Spain and Italy to show proof that they are making moves to raise revenue and cut expenses before asking for aid from the European rescue fund. Once this is accomplished then the market expects the central bank to begin purchasing bonds.

After reaching a low at 1.2241 last week, the EUR/USD has already retraced the break from the top at 1.2443. This target price was 1.2342, today’s high is 1.2373. The move through this price suggests there is some conviction from buyers.

The GBP/USD is also trading higher today, buoyed by the prospects of better times in Europe. The British Pound has been trading inside of a range lately, but with a slight bias to the upside. Today’s trading action suggests that upside momentum is building which could trigger a breakout above the two recent highs at 1.5767 and 1.5777. Additionally, a 50 percent level at 1.5784 is another potential target.

Sterling traders feel that the Bank of England’s stimulus program is having trouble taking hold because of economic issues in Europe. Today’s action suggests that the well-received T-bill auction in Italy will yield a positive influence on the European economy and consequently the U.K. economy which is currently in a recession.

The weaker dollar and geopolitical events in the Middle East helped to underpin October crude oil earlier in the trading session before prices retreated substantially. Reports were circulating that Israel was warning its citizens via text messaging of an imminent missile attack. Traders believed that the warnings were about Iran and that this event could disrupt the oil supply from the region. If these reports are valid then traders should brace of increased volatility.

December Gold is trading lower. The weaker dollar couldn’t drive the market through last Friday’s high at $1629.70. This lack of follow-through suggests that short-covering rather than new buying drove the market higher late last week. In addition, the main top of the current trading range remains $1633.30. A move through this price will reaffirm the uptrend but a failure to do so will mean the presence of strong short-traders. $1586.30 is the new main bottom. A trade through this price will turn the main trend to down. 

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About:FX Empire Analyst - James Hyerczyk

James A. Hyerczyk has worked as a fundamental and technical financial market analyst since 1982. His technical work features the pattern, price and time analysis techniques of W.D. Gann.

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