In the first test the European periphery bond markets after the LTRO ECB action last week, we see Italy able to sell €9 billion 179-day bills at a much lower borrowing costs of 3.251%. That is down from 6.504% at the last auction on November 25th. Demand picked up as the bid-to-cover ratio was 1.7 times, compared with 1.47 previous month. It's a positive sign for Italian debt and as a result the yield on Italian 10-year bonds fell 22 basis points to 6.78%.

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Tomorrow will be another test as Italy auctions off bonds maturing in 2014, 2018, 2021, and 2022 totaling between €5bn and €8bn.

The news didn't necessarily help the EUR as the EUR/USD continued to trade in a tight range, respecting the 200-ema as resistance, while forming some higher lows, a sign of consolidation.

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Following up on yesterday's article about European banks parking LTRO cash at the ECB deposit facility, that total climbed to a fresh all-time high.

From Financial Times: Banks placed almost €452bn ($591bn) overnight on Tuesday in the ECB's deposit facility, which attracts a low rate of interest and in normal times is typically used by banks only to park excess cash, often at a loss. That pushed use of the deposit facility to a further record high after €412bn was deposited over the Christmas holiday.

Nick Nasad is the Chief Market Analyst at FXTimes - provider of Forex News, AnalysisEducationVideosCharts, and other trading resources.