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Dropping Spanish and Italian Bond Prices Wake a Quiet Euro Session

Dropping Spanish and Italian Bond Prices Wake a Quiet Euro Session

Benjamin Spier, Technical Strategist

A calm was felt among the European majors during the first part of the session, as mid-level economic releases failed to move the Euro or Cable out of their tight twenty point ranges. However, as I write this article, EURUSD breaks lower along with the drop in prices of Italian and Spanish bonds.

Spanish benchmark 10-year bond yields climbed nearly ten basis points in today’s session to 7.02%, Italian yields were up nearly 6 basis points to 6.04%. While the fundamental source of the drop in bond prices and Euro is still unclear, we know that European finance ministers just began their conference call to discuss the Spanish aid deal.

The final amount for the aid plan will not be resolved today, but the ministers are expected to agree on the deal itself, and any disaccord could be viewed as disaccord. The German parliament approved the EFSF bailout yesterday, but Finance Minister Schaeuble said Spain will guarantee the loans.

As Spanish and Italian yield prices were rising, EURUSD dropped below the week-long upward trend channel that was providing support around 1.2250. The next support could be expected around the psychological 1.2200 line.

In other European news, UK public sector net borrowing for June was higher than expected at 12.1 billion Pounds. However, the negative currency effect of the higher deficit seemed to be neutralized by the low UK bond yields. German producer prices fell at the sharpest rate since December 2011, but this news also had no effect on today’s trading.

Later today, Canada will announce its consumer price index for June, a 1.7% annual inflation rate is expected.

EURUSD5-minute: July 20, 2012

Dropping_Spanish_and_Italian_Bond_Prices_Wake_a_Quiet_Euro_Session_body_eurusd_daily_chart.png, Dropping Spanish and Italian Bond Prices Wake a Quiet Euro Session

--- Written by Benjamin Spier, DailyFX Research

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DailyFX provides forex news and technical analysis on the trends that influence the global currency markets.