The Euro slipped from its one week highs after the European Central Bank allotted 489.2 billion euros ($643.8 billion) in an auction of three-year loans today much higher than estimated, with a total of 523 bidders. The single currency had run up impressively in Asia, extending its recovery from 11-month lows to break above 1.3200-mark against the US Dollar. Bulk of the gains in the single currency stemmed from a upbeat current of economic news from US and Europe and a reversal in global equity markets.
The DOW jumped by more than 300 points and commodities rallied impressively as an upbeat wave of economic data has set stage for a long-awaited Christmas rally. The US housing sector showed signs of getting propped up after years of turmoil as housing starts jumped 9.3% in November to a seasonally adjusted annual rate of 685,000- the highest pace since April 2010. In Germany, the Ifo Institute's index business confidence improved for the second consecutive month.
Also, Spain was able to sell short-term debt at a far lower yield than in the prior month's auction, and yields on its 10-year bonds trading in the secondary market also pulled back to just over 5%. Euro gained above 1.3100 levels against the US dollar, extending bounce from 11-month lows. There were also expectations of a huge take-up of the European Central Bank's long-term financing program.
While these developments acted in favor of the Euro, some market participants wonder if the European bank use the excess amounted bowered from the ECB today to buy Italian and Spanish government debt or abide by competing pressures on them to cut risk and rebuild capital. This pulled the Euro/Dollar pair lower by more than 100 points. The pair has broken under 1.3100 threshold and currently quotes at 1.3087.
