Events in Italy came to a head this morning as Italian bonds plummeted and pulled down the EUR in a dramatic price drop.
The trigger for the drop in Italian bond prices was the announcement by LCH Clearnet SA, a major clearer of Italian bonds would increase the margin requirements by almost double. Following the announcement yields on Italian government debt reached new highs with the 10-year BTP trading at 7.41%. Spreads of the 10-year BTP/Bund are wider by 14.3% at 568 bp.
The EUR is down sharply versus the USD and in the crosses. The EUR/USD has broken below its rising support line from the November low and is quickly approaching this level at 1.3607. A break here would open the door to additional declines to 1.3525. Should the USD hold its gains the daily candlestick will form an outside day down, a bearish technical indicator.
Also the EUR/GBP has moved below its rising trend line from the June 2010 low but has managed to retrace some of its losses with the BOE set to meet tomorrow. A close below 0.8550 would increase bearish technical sentiment. A lack of support is apparent on the charts and the pair could eventually slip to the 2011 low at 0.8280.
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Russell Glaser is a Currency Analyst with ForexYard. Russell provides analysis in the FX spot market by employing fundamental research methodologies. In addition to currencies, Russell closely follows the correlation between the Commodities market and the movement of equities. His writings have been published on the ForexYard Trading Blog and associated partner sites. Prior to joining Forexyard, Russell Glaser served as a management consultant in the financial services industry, advising Fortune 100 companies. Russell holds a degree in finance from the Fisher College of Business at The Ohio State University.
