EUR USD (1.3170) The euro’s situation remained neutral against the backdrop of yesterday’s Italian bond auction that proceeded in line with expectations – neither good nor bad. With the euro trading within recently small ranges, traders simply attributed the modest uptick to a weak dollar rather than to a strengthening euro. Market participants who focused on Italian bonds nonetheless pursued their discussion about the euro-zone’s woes and the impact of the ECB’s LTROs. The conclusion was that, yes, yields were slightly higher than the previous round but, if compared to last year’s peak, they are still much lower. Furthermore, Italian banks still seem to have the capacity to buy the sovereign’s debt. Debate over the effectiveness of austerity vs. stimulus also persists in similar fashion to two years ago. Private economists are convinced that proceeding with austerity measures will simply worsen the debt/GDP situation, largely because of its detrimental impact on growth. The ECB in its monthly report, however, recommends that eurozone states save more in order bring deficits to at least four percent. The euro remains vulnerable to a fall to 1.3025 and, below there, to 1.2805. As before, we expect the strongest nearby supply at 1.3235. For us to consider the euro as bullish, however, we would need to see it overtake 1.3350.
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Deutsche Bank