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Thin Trading Keeps Euro Close to 11 Month Low

By Theodore Espiritu - Posted on 28 December 2011

The Euro remained close to the 11 month low at 1.3072 against the dollar as trading remained thin but could be pressure if the Italian debt auctions struggle to get investors in the troubled Euro zone. Italy is set to auction 9 billion Euros of 6 month Euros and 2.5 billion worth of 2 year zero coupon bonds on Wednesday and demand is expected to be high but with high borrowing costs. The true test will come in the auction of the 10 year bonds worth 8.5 billion Euros, relying on international demand to keep it below the unsustainable 7% level.

The bond auction will be the focus of the investors with no other events scheduled. With thin trading the outlook for the Euro remains negative unless there is a large move brought about by suprising news.

The funding pressure on the Euro Zone countries could intensify in 2012 when 230 billion Euros of Bank bonds, 300 billion Euros of Government Bonds and 200 billion Euros of collateralized debt is set to mature on the first quarter of the year. The reluctance among European banks to invest in Eurozone sovereign debt even after the liquidity injection by the European Central Bank.

With the latest figures showing banks have deposited 453 billion Euros at the central bank, analyst believe that the banks would not be keen on buying Italian debt to lower borrowing costs.

The dollar index also calmed down at 79.800 against a basket of currencies. The US Treasury criticized Tokyo for the solo yen selling interventions in August and October. However, Japanese officials said that they will not change even after spending record amounts to battle the surge of the Yen with the Euro zone woes and the slowing global economy.

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