Euro Struggles After Costly Italian Auctions

Euro struggles around 1.33 despite recovering risk appetite following higher than expected-yielding Italian bond auctions. UK nationwide house prices and mortgage applications both increased; Eurozone economic confidence fell. Market turns to Canadian trade balance data, housing data and consumer confidence. Tuesdays latest Intermarket Insights are due at approx. 10:00 EST, 15:00 GMT.

The greenback is weaker across the board again today as riskier assets continue to push higher. Relative strength winners are GBP, AUD and NZD. Major European equities are higher by about 0.5%.

Eagerly awaited Italian bond auction saw yields soar to the highest levels since the Euro inception but the bid to cover ratio improved slightly. Italy sold EUR 7.5 bln and the target was EUR 5-8 bln. The Italian treasury sold 2014 BTP with average yield 7.89% from 4.93%, 2020 BTP with avg. 7.28% from 5.47% and 2022 BTP with avg. 7.56% from 6.02%. The inverted yield curve not only implies higher risk of upcoming recession but also the fact that investors are concerned about the possibility of a haircut on their holdings. Considering the size of Italian debt, any additional yield increases would considerably worse Italian fiscal situation.

Italian 10 year yields 7.40% and the 10 year German-Italian spread sits firmly above 5% at 5.12%. At the opposite end of the bond spectrum one can find Switzerland with 10 year yielding less than 1% since the beginning of November. EURUSD fell sharply to 1.3335 after hitting 1.3440 earlier during the session.

Tuesdays latest Intermarket Insights are due at approx. 10:00 EST, 15:00 GMT. Click here to view Mondays trades http://ashraflaidi.com/products/sub01/access/?a=557 Non subscribers can go here http://ashraflaidi.com/products/sub01/

In the UK, nationwide house prices rose 1.6% in November y/y from previous 0.8% and October mortgage approvals surprisingly rose to 52.7K from 51.2K reaching their highest print since 12/2009.

Eurozone economic confidence fell in November to 93.7 from previous 94.8 and final Eurozone consumer confidence was confirmed at -20.4, unchanged from the flash estimate.

The NY session will start at 8:30 am ET with Canadian Q3 current account deficit which is expected to narrow to CAD -11.1 bln from previous CAD -15.3 bln.

S&P Case-Shiller home price index due at 9:00 am ET is seen at -3% in September, slightly higher from previous -3.8%. November consumer confidence due at 10:00 am is expected to rise to 44 from 39.8 and September house price index that is also due at 10:00 am is anticipated at 0.1% from previous -0.1%.

Market volatility could also increase at 11:30 am and at 12:15 pm when FED governors and FOMC members Janet Yellen and Sarah Bloom Raskin speak at FED's Annual Asia Economic Policy Conference in San Francisco.