This information has been prepared by IG, a trading name of IG Markets Limited. In addition to the disclaimer below, the material on this page does not contain a record of our trading prices, or an offer of, or solicitation for, a transaction in any financial instrument. IG accepts no responsibility for any use that may be made of these comments and for any consequences that result. No representation or warranty is given as to the accuracy or completeness of this information. Consequently any person acting on it does so entirely at their own risk. Any research provided does not have regard to the specific investment objectives, financial situation and needs of any specific person who may receive it. It has not been prepared in accordance with legal requirements designed to promote the independence of investment research and as such is considered to be a marketing communication. Although we are not specifically constrained from dealing ahead of our recommendations we do not seek to take advantage of them before they are provided to our clients. See full non-independent research disclaimer and quarterly summary.
Traders bought the euro after the cost of borrowing for the Italian and German governments dropped. The yields on ten-year bonds fell to 4.11% and 1.71% for Italy and Germany respectively. As the yield on a bond is effectively the cost of borrowing, a reduction suggests that investors have more confidence in the ability of the government concerned to repay its debts. Consequently, the euro was pushed higher after the details of today’s auctions were announced.
Most traders are now sitting on their hands ahead of an announcement from the Federal Reserve at 6pm. It is unlikely that tapering of the bond-buying scheme will be on the cards, as the US economy received a setback during the recent partial shutdown.
Traders will be listening out for clues about how positive or weak the Fed’s outlook for the US economy is. If the Fed is dovish tonight we could break the recent high of $1.3833 and, as Brenda Kelly explained on Monday, this could set EUR/USD on a path to $1.4.