Forexpros – The euro erased earlier losses Friday, regaining some strength lost to the dollar on fears that high Italian yields indicate the European debt crisis is set to worsen in 2012.
EUR/USD hit 1.2971 during the last session of 2011 in light trading after sustaining heavier losses, up 0.08% and between a session low of 1.2905 and a high of 1.2999.
The pair was likely to find support at 1.2905, an earlier Friday low, and resistance at 1.3080, Wednesday’s high.
The euro was poised to post its first consecutive annual losses versus the dollar in a decade.
Rising yields in Italian government debt markets continue to fuel fears that the crisis remains firmly in place.
Yields on 10-year Italian government bonds have spiked above 7 percent, and concerns are growing that figure is too high considering the country will return to the markets in 2012 to raise EUR450 billion, according to Reuters data.
“The risks in Europe will get worse before it gets better,” said Matt Brady, an executive director for foreign exchange at JPMorgan Chase in Sydney, according to Bloomberg.
“Risk sentiment is going to be dire as we head into 2012.”
In the U.S., initial jobless claims came in this week at 381,000, higher than expected.
Markets had been forecasting a figure of around 370,000.
Meanwhile the euro was lower against the pound, with EUR/GBP slipping 0.69% to hit 0.8348.
French President Nicolas Sarkozy and German Chancellor Angela Merkel are due to meet on Jan. 9 to discuss ways to battle the crisis, and the currency markets will track events and commentary suggesting any likelihood for success in the meantime.
Furthermore, ratings agencies have threatened to downgrade a large swathe of Europe, and talk of them making good on those threats will draw swift market reaction as well.
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