Euro Gets a Lift on ECB Loan Promise

By: Barbara Zigah

The common currency extended Tuesday’s gains during Asian trading as investors’ hope builds that the European Central Bank’s most recent offer of longer-term loans could help the Eurozone’s banks with their liquidity problems. Yesterday’s better than expected Spanish auction, which resulted in yields nearly halved from the previous auction, sent sentiment soaring. Short covering investors helped to push the Euro higher; as of 11:07 a.m. (JST) in Tokyo, the Euro was trading against the U.S. Dollar at $1.3120, retreating from an intra-session peak of $1.31278. Yesterday, the Euro gained some 0.6%, can struck a high of $1.3132. Key resistance for the EUR/USD pair is seen at $1.3150.

Markets will likely focus on the ECB’s newest offer of 3-year term loans for the Eurozone’s banks, and analysts expect that up to €450 billion might be borrowed, though the median expectation is closer to €250 billion. It is believed that as many as 10 banks from Italy, several of them major lenders, could seek up to €70 billion worth of the ECB funded loans. Investors are hopeful that this could be enough to stimulate the so-called Santa Clause Rally, typically seen in the build-up of optimism ahead of the Christmas holidays.