Mixed Italian Auction, EURUSD Below 1.37

EURUSD Below 1.37; Italian Bond Auction Results Mixed

Italian auction ends with improved bid to cover ratio but higher yields; Eurozone industrial production declines; Swiss deflationary worries persists as Swiss producer and import prices fall. The day's Premium Intermarket Insights will be issued prior to the NY open.

Italy was able to reach the full target by selling EUR 3.0 bln in 5 year bonds. Bid to cover ratio improved to 1.469 from 1.34 but the gross yield was 6.29% compared to previous 5.32%. 10 year yields around 6.38% with the Italian-German 10 year spread at 4.52%. Italy has now raised 4/5th of its total planned bond issuance for the year. Over EUR 45 bln in new bonds must be raised before year-end.

Investors optimism proves short lived as risk aversion returns to markets. USD is higher across the board with the exception of JPY in the ongoing session. European equities are in red by about 0.5%.

EURUSD opened higher and traded above 1.38 during the Asian session on the back of a smooth transition of power in Italy. PM Berlusconi resigned on Saturday as planned after the parliament approved 2012 budget. Former EU commissioner Mario Monti was selected to form a new government and could be sworn into office as early as Wednesday. However, EURUSD has not been able to hold onto the gains and pulled back to 1.3670 where it continues to trade.

Eurozone industrial production fell -2.0% in September after growing 1.4% in August (+2.2% y/y down significantly from 6% y/y). This is the worst result since mid 2009 and most concerning is that production was notably weak in Germany, France and Italy which are the three Eurozone's most important economies. The probability of a recession has increased dramatically over the past few weeks.

Swiss producer and import prices declined in October -0.2% from -0.1% in September which translates to -1.8% y/y from previous -2.0% y/y. Fears that deflationary pressures will continue could reignite SNB's comments about further measures to weaken the Franc.

There is no data due during the NY session.

CAD traders should pay attention at 1:00 pm when BOC governor Mark Carney speaks in Toronto.