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Euro Awaits Spanish and French Auctions

Last updated 11/17/2011 3:45 AM ET (GMT -5) 0 Comments - Add your comment

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Boris Schlossberg

Director of Currency Research, GFT

High beta FX was off it Asian session lows at the start of European trade today, but traders remained wary of the Spanish and French auction due to  commence at  around 9:00 GMT today. Spain is expected to auction off 3.5 Billion euro of 10 year bonds while France is seeking to auction off 2, 4 and 5 year paper.

Yesterday risk assets were badly hurt by the warning from Fitch which suggested that the sovereign debt crisis in Europe could morph into a banking crisis as the financial sector in the region struggles for financing. The EUR/USD tripped stops at 1.3425 and Aussie tumbled to 1.0020 in early Asian trade as the selloff in risk accelerated. Both pairs however stabilized in late Asia and staged a small short covering rally to 1.3500 and 1.0100 respectively before meeting offers once more.

Currency markets continue to be driven by the credit markets and to that end today’s auctions loom large on the horizon as as test of investor sentiment. The French auctions are of particular concern to the market on fears that the credit crisis in the periphery may be in danger of infecting the core economies of Europe. Those concerns continue to be expressed in the widening of spreads for EFSF bonds which today reach a record gap of 190bp to German bunds. If French credit  comes under assault in today’s auction it will trigger further selling in risk FX as the crisis in the region worsens. On the other hand, a relatively steady result could provide a strong lift to high beta currencies on relief that the credit markets may be finally stabilizing.

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About The Author

Boris Schlossberg began his Wall Street trading career more than 20 years ago at Drexel Burhnam Lambert. There, he traded nearly every type of financial product on the market in the U.S., from equities and options to stock index futures and foreign exchange. His innate ability to analyze market information and use it to trade has helped him become an industry-recognized, “go to” trading professional.

These days, whenever the markets move, many organizations turn to Schlossberg for his take on the situation. He is a weekly contributor to CNBC's Squawk Box and a regular commentator for Bloomberg radio and television. His daily currency research is widely quoted by Reuters, Dow Jones and Agence France Presse newswires and appears in numerous newspapers worldwide. Schlossberg has written for publications like SFO magazine, Active Trader and Technical Analysis of Stocks and Commodities. He is also the author of Technical Analysis of the Currency Market and the co-author of Millionaire Traders: How Everyday People Are Beating Wall Street at Its Own Game with Kathy Lien. He joined GFT in 2008.