The euro retreated sharply with the start of this week, despite the steps taken by Italy and Greece to control the two-year old debt crisis and prevent it from spreading further within the zone. Both nations were able to end the political instability and accelerated the implementation of the required austerity measures; however, these steps are insufficient to quell jitters and rising debt concerns, especially when all eyes are focused on Italy and rising yields, which hit the highest record since 1997.

Europe remains the main focus in the market, while market tension is still dominating investors who are looking forward to the gross domestic product figures from the euro zone and Germany tomorrow, which could confirm that euro-area nations are going through recession.

The Italian Treasury sold three billion euros of 5-year bonds as targeted at 6.29% yields, the highest since 1997, up from 5.32% in the October 13 auction, where borrowing costs surged despite that Italy overcame the political instability, which sent the euro further to the downside.

The euro opened this week in Asia at $1.3807, setting the highest at $1.3808 and the lowest at $1.3650 against the strengthening U.S. dollar, and now the EUR/USD pair is hovering around 1.3659.

Italian lawmakers attempt to restore confidence and prevent the debt crisis contagion from spreading into the Italian economy, where Italy in a first move ended the political instability after the lower house of deputies approved the austerity measures to cut the huge amount of debt the nation handles along with blocking the debt crisis from spreading further, where after the vote from the lower house the former Prime Minister, Silvio Berlusconi resigned as promised and Mario Monti became the new Prime Minister.

Moreover, the German Chancellor, Angela Merkel called for a closer political union, explaining that the time has came from Europe to move towards closer political union and leaders attempt to prove that euro-area region is serious about ending the two-year old debt crisis.

Investors as seen in the market are excessively demanding save havens, where the U.S. dollar and the Japanese yen gained the most today, as fears are rising that Italy will not cope with rising yields and could have no more access to the capital market, which added to concerns that Italy will not be able to meet maturing bonds of 200 billion euros next year especially when gross domestic product figures tomorrow are expected to confirm that euro-area nations are going through another phase of recession.

The U.S dollar index (USDIX) started the week at 76.66, and is currently trading around 77.32 after reaching a high of 77.36 and a low of 76.66.

On the other hand, the Japanese yen was the only currency that beat the U.S. dollar as demand for safe havens and low yielding currencies surged today, where the USD/JPY pair is currently trading around 76.95 after reaching a high of 77.26 and a low of 76.79, noting that the pair opened in Asia at 77.25.

The Bank of Japan's intervention has failed to control the rapid incline seen on the yen, which hurt the Japanese economy and specifically exports, where we can see the pair is gradually loosing positive momentum, which could lead the Bank of Japan to intervene again, especially after the Bank explained that it would intervene every time the yen gains excessive strength.