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Euro falls sharply on weak German auction

The Euro was dealt a heavy blow earlier today after German debt auction came close to failure, indicating that the euro zone crisis is entering a new phase. Germany’s issue of 10-year debt saw only about €3.9 billion out of a maximum of €6 billion snapped up by bidders. The auction of 5-year bonds attracted bids of just 1.1 times the amount on offer, compared to 1.5 times at the previous auction last month. The yield on the 10-year bund reached the important level of 2% for the first time in November, fuelling fears that the German paper is not as rock solid as previously considered.
The Euro came under heavy selling pressure against the USD and the sterling in reaction to the German auction news, with the EUR/USD hitting a six-week low below $1.3400. At the time of writing the pair is hovering around 1.3366 (October 9 low). On the downside, if the pair manages to break the 1.3379 support level, next support is seen at 1.31905 (October’s low). In the event of a rebound, the pair could find resistance at 1.3861 (50% Fibonacci level). Although the auction results offer little budget risk to Germany, the lack of demand for the safety-linked Bund suggests that the euro zone crisis is reaching a new level of intensity. It remains to be seen if the December 9 EU summit will offer tangible solutions.
EUR/USD Daily Chart

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