Credit: Shutterstock photoRisk FX rallied ahead of the Portuguese auction due at 10:40 GMT today with EUR/USD breaking above the 1.3000 barrier in early morning European trade as sentiment in the credit markets improved slightly. Irish, Greek and Portuguese CDS were a bit lower ahead of Portugal's auction to offer 750 million euros of four and 1.25 billion euros of ten year bonds.
Yesterday the yield on the Portuguese benchmark 10 year bonds rose above he critical 7% level - a mark that many analysts believe will ultimately force Portugal to seek bailout help from the EU. However, aggressive buying by the ECB pushed yields below the 7% barrier once again. Several factors have served to calm the markets including relatively well bid auctions by Greece and Netherlands yesterday, an announcement by the Japanese that they will be willing to invest into the EFSF bonds and continued supportive rhetoric out of China.
Indeed Chinese officials were once again on the wires today with Xia Bin an economic advisor to the PBOC stating that the current debt crisis in Europe will not affect EUR/USD long term position within the global monetary system. China has been an vocal supporter of the EUR/USD since the start of the year as officials seek to stabilize the currency in China's key export market. If Chinese decide to back up their rhetoric with action, purchasing a significant portion of the Portuguese auction the vote of confidence could lead to further gains in the EUR/USD as the unit tries to move back into the 1.30's. Given the small size of the Portuguese offering and its critical importance to the market, it reasonable to assume that China will try to ease credit market concerns by becoming a buyer.
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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.
