Promising Italian Debt Auction

Promising Italian Debt Auction

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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.


We offer this dissertation as an example of
thinking through the factors that drive
currency rates.


For more insights and useful information
regarding the Forex markets and foreign
currency trading, visit
www.TheForexNittyGritty.com.

Promising Italian Debt Auction

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Promising Italian Debt Auction