LONDON, January 10, 2012 /PRNewswire/ --

As the Euro reaches a 16-month low against the Dollar, the eurozone crisis continues, leading to bearish trading on the EUR/USD currency pair.

While bond auctions by Spain and Italy should provide insight into investors' confidence in plans to solve the eurozone financial crisis, traders are currently buying dollars and selling euros as the market turns bearish.

City Index has reported a dramatic increase in traders 'going short' on EUR/USD on their spread bets as the euro goes 15% down against the dollar since May 4^th 2011, falling from $1.4939 to a low of $1.2664.

Meanwhile, the spreading recession in the eurozone is also making it harder for Greece and other countries with bailout programmes to reduce their fiscal deficits.

Greece's high deficit is in turn raising the risk of a full blown default on its bonds, which could have dire consequences for the eurozone as a whole.

Rise of the dollar

Long viewed as a safe investment in times of economic turmoil, the US dollar continues to demonstrate its value following hopeful signs of an economic recovery with non-farm payrolls surpassing market expectations while the unemployment rate fell to its lowest level in nearly three years.

As a result, the US Dollar continues to be seen favourably by investors looking to diversify their investments into safe haven asset classes amidst the economic turmoil of the eurozone sovereign debt crisis.

This, along with the fact that the Federal Reserve continues to keep the prospect of more quantative easing in the pockets for now, is keeping the Dollar on top of the single currency, and pushing the euro/dollar rate to new 16 month lows.

Eurozone developments

German Chancellor Angela Merkel and French President Nicolas Sarkozy warned Greece it will get no more bailout funds until it agrees with creditor banks on a bond swap and a deal to avert a potential default.

Other issues discussed included: new rules for budget discipline, how to stimulate growth, a controversial financial transaction tax and the need to press ahead with treaty changes.

While the EU leaders continue to 'kick the can' down the road, investors are uncertain over how much road the euro has left. Meanwhile, the dollar remains the go-to currency in times of serious risk aversion.

Trading on the EUR/USD currency pair is expected to remain bearish. But the real question for traders making a profit from spread betting is just how low the euro can go.

For more information about how to spread bet on currency pairs, visit http://www.cityindex.co.uk/spread-betting/

Spread betting is a leveraged product which can result in losses greater than your initial deposit. Ensure you fully understand the risks.

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SOURCE City Index