Following a short-lived rally, the Euro’s gains have been capped as investors await an Italian sovereign debt auction which will be held later today; there is a growing concern among investors that the third largest economy in the Eurozone may need some external support. Of note is that the yield on German bunds has been slowing creeping higher, and analysts say that that is because investors are worried that the Eurozone’s powerhouse won’t have the means to fiscally support Italy in the event they are forced to ask for bailout assistance. The upcoming Greek election is also giving investors a valid reason to either take a pause or shift into a more bearish sentiment.
As reported at 1:07 p.m. (JST) in Toyo, the Euro was trading at $1.2570, dropping back from Wednesday’s high of $1.2611. Analysts expect that bearish sentiment will prevail for the EUR/USD until the outcome of the Greek elections is announced on Sunday; while the outcome is unpredictable at the present time as parties from both sides of the austerity issue are nearly neck-and-neck. In the event the parties which formed the former coalition pull out the win, analysts expect a 300 or 400 pip rally, while a win for the anti-austerity parties would like see the Euro drop by at least an equivalent amount. Either way, volatility is expected to be exceptional.