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EUR Stable Following Italian Budget Reforms

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In light trade this morning the EUR is higher after Italy presented new austerity measures to help calm bond investors who have been pressuring Italy over the past two months. According to the most recent IMM data FX traders continue to favor bearish bets against the EUR.

Italy unveiled an austerity program designed to save EUR 30 bn over the next 3-years. This has helped 10-year Italian bond yields to fall as low as 5.83% from their highs above 7%. This week is an important week in the European debt crisis. Today there will be meetings between Sarkozy and Merkel in Paris. US US Treasury Secretary Geithner will be making the rounds to push European leaders to come to an agreement. The hectic week of meetings will culminate with the EU economic summit in Brussels where EU leaders are expected to form an agreement for closer fiscal ties.

What this all means for currency traders is that the FX markets will be more driven by the headlines and press conferences that follow these meetings. FX markets appear to be fairly illiquid this morning with the EUR up slightly both versus the USD and in the crosses. The Financial Times has reported a number of liquidity providers have seen lower volumes since the end of Q3.

The most recent COT report of the IMM data shows EUR speculative shorts continue to grow, rising to a net short position of -104K contracts, the largest short position since the summer of 2010. The risk is for European leaders to come to an agreement on Friday which would induce a large amount of EUR short covering.

The EUR/USD has support at last Friday's low of 1.3360 with a rising trend line on the hourly chart from the November 25th low which comes in at 1.3315. Resistance is found at last Friday's high of 1.3550 and the November 18th high of 1.3610. The EUR/JPY is moving higher towards the resistance of 105.65 where the pair's 55-day moving average comes into play. Support is seen back at the November low of 102.50.

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.


The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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