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Trichet’s extensive bond buying plan of Italian and Spanish bonds is doing wonders. Yields on 10 year Spanish government bonds fell to 4.98% and they continue sliding.

If they close at these low levels, it will be the lowest close since November 2010, just before the Irish crisis erupted. Since then, Spanish yields were above 5%, and in the recent round, they surpassed 6%.

Italian bond yields are lagging behind: they are currently at 5.05%. The November – July range for these bonds was 4.5% to 5%. Italy used to be considered more safe than Spain. Not any more.

This has a positive affect on EUR/USD. See the euro dollar forecast for more on this pair.