FOREX: Euro Optimism to be Tested as Italy Holds Bond Auction | Learn Forex | GoLearnForex.com

Talking Points

• Italian Bond Auction to Test Market Confidence as Monti Tapped for PM Spot
• US Dollar Consolidates vs Major Currencies, Asian Shares Follow Wall St Higher
• New Greek PM Papademos Pledges to Secure Aid Funds with Action on EU Goals

Most major currencies were little changed against the US Dollar in overnight trade despite a strong rally across Asian stock exchanges, where shares soared over 1 percent on average on news that Greece and Italy are making progress toward installing new governments committed to addressing the countries’ debt woes.

In Athens, the nascent administration of Lucas Papademos – a former Vice President of the ECB – pledged to implement the terms of his country’s bailout, paving the way for disbursement of aid funds. Meanwhile in Rome, the lower house of Parliament passed a round of austerity measures that cleared the way for the resignation of Silvio Berlusconi, with President Giorgio Napolitano tapping former EU Commissioner Mario Monti to form a new government, as expected.

On balance, the announcements mirrored what investors had expected heading into the weekend, suggesting the advance across Asian bourses was a catch-up move to those seen Friday on Wall Street and in Europe rather than new-found confidence in progress being made on the Euro Zone debt crisis. Indeed, the re-emergence of sovereign risk jitters looks likely over the near term as the focus turns to how effectively the incoming Greek and Italian governments can implement deficit reduction schemes.

So far, Greece has proven to be an excellent case study of a country that promised a lot but delivered little, failing repeatedly to meet the budget benchmarks set by its saviors at the EU and the IMF. With that as their base-line scenario, traders are unlikely to expect much more of Italy, at least initially.

The first true test of the markets’ confidence comes today in the form of an Italian bond auction, with the country scheduled to sell up to €3 billion in paper maturing in 2016. The uptake for the securities, including any buying from the ECB, as well as the prevailing yield levels will be closely watched to gauge Italy’s ability to sustainably refinance its obligations.

Related: Trading the Euro-Zone Debt Crisis

Asia Session: What Happened

Euro Session: What to Expect

Critical Levels

--- Written by Ilya Spivak, Currency Strategist for Dailyfx.com

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