Euro caught a bid in early European trade today, as better risk appetite in equities and demand from Middle East caused a flurry of short covering sending the pair through the 1.3550 level. Investors were heartened by news that Greece is likely to receive its next trance of 8 billion euros of aid on November 29, despite some resistance to reforms by the opposition party leadership.
Markets are also becoming concerned about the failure of the super committee in US to reach an agreement on the budget which would lead to automatic sequestration of funds, most notably the elimination of the payroll tax holiday and further unemployment benefits. Such a scenario could lope off as much as 1% off US GDP growth in 2012. Although the actual sequestration will not occur until eight months forward, the negative prospect of such an action could weigh on the dollar taking some pressure off the euro.
Meanwhile in EZ the economic calendar is barren today with prime event risk centered on the Spanish auction. Spain will offer up to 3 billion euros of 3- and 6-month Treasury bills. Borrowing costs are expected to surge by around two percentage points, with markets providing little relief despite the strong win of the centre-right Popular Party's on Sunday. Still, with credit spreads in the region stabilizing the EUR/USD may see a push higher towards the 1.3600 level if risk flow remain supportive and late shorts continue to be squeezed.@import url(/css/cuteeditor.css);