With the start of this week, pessimism dominated the market after investors started to weigh the results of the European Summit negatively, following the European Central Bank rate decision on Thursday, which disappointed investors after Draghi reassured in the press conference that the Bank is not allowed and will not provide any financing for governments.
The sentiment deteriorated further today as the U.S. rating agency, Moody's, clarified that the European Union credit rating is still under review despite the deal reached by European leaders in the summit, where pressures remain evident on European rankings and the entire union will be under review in the first quarter of the next year.
Moreover, Italy sold today 7.0 billion euros of 1-year bonds at an average yield of 5.952%, less than the previous of 6.087% seen in November, yet much more than the 3.57% recorded in October. Demand was 1.92 times the quantity offered, yet less than the previous 1.99 times.
All these mentioned factors above pressured the euro further to the downside and now investors only conceive the dark side of the agreement reached at the European summit, where the common currency deteriorated further after the Italian bond auction, as yields, despite the slight decline seen, are still relatively high and threatens Italy with the unsustainable borrowing cost, which could lead the nation to follow Greece, Ireland and Portugal's steps into deep crisis.
The EUR/USD pair started this week at $1.3377 and recorded the highest at $1.3379 before reversing sharply to the downside towards a low of $1.3251. The pair is currently hovering around $1.3265.
The strengthening U.S. dollar index (USDIX) gained after the opening of 78.71, where the index reached a high of 79.25, after setting the lowest at 78.69, and trades now around 79.16.
On the other hand, the Australian dollar lost strength against the U.S. dollar as pessimism dominated the market and after the downbeat fundamentals, which showed that the trade surplus narrowed beyond expectations to almost 1.6 billion Australian dollars from almost AUD2.25 billion, as the global slowdown and the escalating debt crisis affected global demand for Australian exports.
The AUD/USD pair opened the session today at $1.0208, and recorded the highest at $1.0214 and the lowest at $1.0089, and is trading in the moment at $1.0114.