Time to Buy the Euro

Portugal's first bond offering of 2011 can be considered a success, although it does not by itself signal an 'all clear' for the European Sovereign Debt Crisis. It does, however, mean that Portugal does not need to tap an Irish-style EU/IMF bailout in the immediate future.

According to the Wall Street Journal:

Portugal offered €750 million to €1.25 billion of the 3.60% October 2014 and 4.80% June 2020 bonds. Yield on the shorter bond came in at 5.396%, up from 4.015% at the previous sale Oct. 17, while the average yield on the longer-dated bond was 6.716%, slightly down from 6.806% at the previous auction Nov. 10. The bid-to-cover ratios came in at 2.6 versus 2.8 previously for the shorter bond and at 3.2 versus 2.1 for the longer bond.

80% of the demand was from foreign buyers.

Of greater significance was the news that Europe is now in early discussions to increase its main bailout mechanism, the European Financial Stability Facility. Wednesday's WSJ reported that top civil servants from EU finance ministries discussed an overhaul of the EFSF on Monday and Tuesday, which included raising the fund's size and letting it intervene in bond markets.

Japan earlier this week pledged to buy more than 20% of bonds to be issued by the EFSF, and the Chinese are also expected to be participants. Investors responded to the news by pushing EUR/USD up from nearly a 4-month low on 1.2872 to 1.3040 by 9:45 am EST Wednesday.

The bottom line for investors is that European officials are apparently responding to market pressures more aggressively. For example, while the idea of a pan-Euro bond offering was rejected in December, news that the ESFS would indeed issue bonds amounted to basically the same thing since the debt is expected to be issued with full faith and credit, and therefore attain the highest investment grade ratings.

With this being said, EUR/USD could still test the 1.2950 area for support, which is where I would be looking to make my first entry.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. Looking to get long EUR/USD in the 1.2950 area.