Euro Off to a Rocky Start as Key Meetings, Bond Auctions Draw Investor Focus

Ahead of this year’s first “official” meeting between France’s and Germany’s leaders, the Euro once again finds itself broadly on the defensive. Over the weekend, fiscally troubled E.U. member Hungary saw their credit rating downgraded to “junk” status by Fitch’s rating agency. Separately, one German media house reported that the International Monetary Fund was growing disillusioned with the Greek government’s promises and ability to stem its own fiscal crisis.

Even Friday’s unexpectedly improved U.S. labor data failed to change investors’ primary focus, as two key sovereign debt auctions loom to reignite debt fears. The latest worry is that Spain’s and Italy’s bond auctions, to be held on Thursday and Friday, respectively, will see tepid interest, a sign that potential investors are – like the IMF – dubious of the Spanish and Italian governments’ efforts to restore fiscal integrity. Yesterday, the Italian Prime Minister publicly announced new plans which would broadly promote competition across sectors.

Later today, German Chancellor Angela Merkel and French President Nicolas Sarkozy will be meeting in Berlin to discuss, among other things, implementation of the fiscal pact which was agreed to last month, and a controversial financial transaction tax.

Data releases today include Germany’s trade balance, which improved to €15.1 billion in November from October’s revised €12.5 billion. German data on industrial production will also be released, as will the Sentix investor confidence index for the EMU which is expected to have deteriorated further.

Currently, the Euro is trading slightly higher against the U.S. Dollar at 1.2725. On the eToro trading floor, overall trader sentiment continues to be bearish on the Euro-Dollar pair. In keeping with the OpenBook trend, over the past few hours, eToro trader pyruss placed numerous orders to sell the EUR/USD pair and has several more open shorts.