The sentiment remains extensively negative and the market turned extra jittery and frantic after Italy sold bonds at yet again another record high, assuring that the current rate is not sustainable and the crisis is spreading without slowing or a near end.
The euro extended the strong bearishness that started on Monday after the Italian bond sale as the nation sold 3.0 billion euros of 5-year bonds at a record 6.47% yield which pressured the euro to breach the psychological $1.30 areas and extended further to the downside.
The EUR/USD hit a fresh low in the European session at $1.2966 and currently down around 0.40% at $1.2987 from the opening levels of $1.3037.
The breach of the 1.30 areas proved to be very bearish on the pair and now with stability below those areas we expect the downside move can extend further and negate the positive signals on momentum indicators. The downside move is likely to continue targeting 1.29 areas and maybe further towards 1.2845 as far as stability is seen below 1.3080 and preferably 1.30 areas.
Overall the news did not add anything new to the market, yet it is only a reminded of the prevailing strain and pressure on the euro and the outlook for the nation that is for now mired in recession and further debt agony.
Investors are dumping risky assets and moving to the safety of the dollar that is enjoying the good run especially after the Feds did not offer a strong signal for further easing which further diluted the thought of QE3 for now and at least delayed it for sometime into next year as the good run of macroeconomic data gave the Federal Reserve sometime to observe and see if the uncertainty over the European outlook will materialize in the coming two months into rapid and drastic reversal in economic activity in the United States which so far is not strongly seen.
This coupled with the evident strain and debt jitters extended the gains for the dollar ahead of the holidays with the year coming to an end and the dollar returned to trade around its highest this year as it reached the strongest since January versus the euro and heading towards the year's set low at $1.2872.
The USDIX is currently trading around 80.50 rising 0.3% from the opening of 79.61. The index is at sensitive resistance levels and a breach and stability above 80.66 will be a strong support to the upside for the index that will open the way for the dollar index to rise as far as 82.58 areas.
More volatility is expected for today with the market still worried over the outlook for the euro area and with the euro now as said trading below the psychological levels of 1.30 only a strong unexpected comment today can negate it but still unlikely!