The rally in the euro goes to a third day, buoyed by hopes about a Greek deal and continuing strong flow of bond auctions.

The single currency continues to defy all expectations by rising versus the US dollar, helped by a successful set of bond auctions this morning by Spain. Reports of the feared ‘short squeeze’ in markets are increasing, where those traders who have sold the euro in anticipation of further falls are forced to buy back the currency, pushing it higher. However, the bond auctions may be succeeding as a result of eurozone banks buying up the issues to use as collateral when lodging cash with the ECB.

General optimism about the global economy continues to be the main driver of events, as investors sell the US dollar and buy up other currencies as well as stocks and commodities. Thus, the rise in EUR/USD should be seen less as a vote of confidence in Europe, and more of a widespread bullishness among investors that seems to be holding up well in 2012.