Be the first to like this
http://www.TheForexNittyGritty.com - Promising Italian Debt Auction - The servicing costs for Italian debt just went down after a promising Italian debt auction. Just last month Italy had to offer over six percent interest in order to sell bonds to refinance its debt. This month the rate fell to five and a half percent. European Central Bank loans were believed to be largely responsible for the promising Italian debt auction. At the time of a Moody downgrade of European national debt ratings the European Central Bank issued half a billion Euros worth of loans to banks on the continent. Some of this increase in liquidity was apparently responsible for the fall in interested rates from the last Italian bond auction. Italy sold €3.75 billion worth of ten year bonds. Sale of all bonds came to €6.25 billion.
The promising Italian debt auction is good news for the European Union and for the Euro. Last fall many wondered if Italy would follow Greece into default and cause in irreparable rupture of the fabric of the European Union itself. Stabilization of the debt picture in Italy as well as the rest of the so called PIIGS group (Portugal, Italy, Ireland, Greece, and Spain) could bode well for a stronger European economy and a stronger Euro. As Italy continues to refinance its debt, Forex traders will watch to see if it is able to convert more and more of its debt to longer terms. Other issues for those wishing to trade the Euro will be a continued low European Central Bank rate. The European Central Bank seems to be following the lead of the United States Federal Reserve by purchasing government notes. This serves to drive down interest rates and in turn provides a necessary economic stimulus.
Over the long haul the effect of printing money to buy bonds, stimulate the economy, and pay off national debts may have the effect of driving the value of the Euro downward. However, currencies are traded in pairs and if everyone else is using the same strategy the Euro may not suffer. The Euro, dollar, Yuan, pound, and other currencies may fall versus commodities but not versus one another. Another issue that looms over the promising Italian debt auction in Europe is fiscal austerity that countries across the continent are adopting in order to manage their debt burdens. Many believe that the end result of too much belt tightening will be a recession in the coming year or two. There are those who believe that a Euro Zone debt resolution will only come paired with a recession. However, a cheaper Euro will make European products more competitive on the world stage. Stronger exports by Europe could be the ticket to an economic recovery. Certainly exports have been the answer for economic growth across Asia. A promising Italian debt auction could be just the beginning of a fall and then long term recovery of the Euro. As always we are not suggesting that Forex traders trade the Euro or ignore the currency in trading.