Euro Bid Ahead of Periphery Auctions

@import url(/css/cuteeditor.css); The EUR/USD was mildly higher ahead of key Italian and Spanish auctions today trading above the 1.2700  as currency traders anticipated solid demand for the periphery bonds. Spain is scheduled to sell between 4-5 Billion of 3 to 4 year paper at around 9:40 GMT while Italy will auction off 8.5 Billion of 1 year BOT and 3.5 Billion of new flexi BOT at approximately 10:10 GMT.

Given the short maturity of the debt and the fact that overnight deposits at the ECB fell to 470B from 485B, the expectation is that European banks will roll their cash balance into the higher yielding Spanish and Italian debt. The EUR/USD rallied  to 1.2730 ahead of the auctions and may target the 1.2750 level if the results are positive.

However, the pair is unlikely to make much progress until later today when all eyes will focus on Mario Draghi at the monthly ECB press conference.  The consensus view is that this will be essentially a maintenance meeting with no new policy proposals from Mr. Draghi, but given yesterday’s warning from Fitch ratings the pressure on the EZ monetary policymakers is intense and investors could voice their disappointment if the ECB  does not offer any fresh initiatives.