EURUSD at 1.3250s Awaiting Italy Auction

Risk aversion damaging all risk assets and commodities, & EURUSD at 1.3250s. Italian auction a key test for yields after Merkel rules out ECB and Eurobonds, Moodys downgrades Hungary to junk status, Italy retail sales drop for 4th straight month, ratings pressure increases on France as yields push higher, Sterling damaged by BoEs Miles and Broadbent warn on economy. Friday Premium trades to follow ahead of the US session.

Yesterdays failure to get an agreement on either a Eurobond solution or greater ECB involvement in the European sovereign debt crisis, throws the focus back onto bond yields this morning as the Italian treasury seeks to auction 8bn worth of 6 month t-bills.

With Italian yields above 7% on 2, 5 and 10 year bonds and this weeks earlier failed German auction it is hard to imagine a more significant auction with respect to not only bid to cover but also the yield. Italian retail sales for September are expected to slip 0.2% month on month.

Italy Sep retail sales fell 0.4%, posting their 5th straight monthly decline, while down 1.6% y/y. Italy 10 yr yields post their 4th straight daily gain, hitting 7.23% (high was 7.48%), pushing the Italy-German 10 yr spread to 5.06% (high was 5.54%).

One day after Fitch downgraded Portugal, Moodys downgrades Hungary to Junk status to to Ba1, with a negative outlook, hours after rival Standard & Poor's held its rating unchanged.

GBP started to come under renewed pressure after yesterdays UK Q3 GDP revision showed that business investment dropped sharply, and BOE policymaker David Miles warned that the UK economy was facing the worst downturn in 100 years. MPC new boy Ben Broadbent also warned of a new recession after warning on Q4 growth figures, while Martin Weale is due to speak later on the economy.

Our Wednesday Premium trades hit their targets in one of the EURUSD & EURJPY trades, while another remained unfilled. Oil hit all targets on the 1st short, while the other remains working. Here is direct access to those trades http://ashraflaidi.com/products/sub01/access/?a=555