EUR/USD rose to a ten-day high against the dollar at $1.2595, after an auction of ten-year bonds by Madrid saw strong demand, albeit at a higher borrowing cost.
Spain sold €2.07 billion of ten-year bonds in an auction, exceeding their maximum target of €2 billion. However, borrowing costs rose to 6.044% from 5.743% at the previous auction in April. Arguably this level is unsustainable, raising the question of how long Spain can hold out before being forced to ask for a bailout.
Investors also await the testimony of Federal Reserve chairman Ben Bernanke on the outlook of the US economy for any clues regarding additional QE. The poor jobs report for May, combined with a general weakening of economic data around the world, has increased speculation that the Fed will opt for more monetary easing to reinvigorate the US economy. The FOMC is scheduled to meet on 19 and 20 June to decide whether additional stimulus is required amid concerns that the economy is slowing. This speculation has increased risk appetite among investors and driven them to cut back on their dollar exposure, resulting in gains for the euro.
On a technical basis, the currency pair is likely to find support at $1.2368 and then at $1.2276 and resistance at $1.2811. Much of course depends on this afternoon's testimony from Mr Bernanke – any rally could quickly evaporate if he does not drop hints regarding more QE in the US.