FXstreet.com (Córdoba) - There has been some improvement in European sentiment today, with Spanish and Italian bond yields lower, European equities higher and the euro rebounding from yesterday's lows, points out the Wells Fargo team.

"The main trigger for today's market moves are comments from ECB policymaker Nowotny who hinted at the possibility of giving a banking license to the European financial aid funds. To the extent that such a move would enable those funds to borrow from the ECB, their capacity could be increased substantially, which would be of particular significance for the larger peripheral economies such as Spain and Italy", they explain. "While some European policymakers have in the past spoken against the idea of a banking license, the recent rise in European bond yields is testing the tolerance levels of the European authorities, while prompting a search for policy options".

"With the convergence between the US and European rates already largely complete (European three-month interbank rates fell below US rates for the first time since January 2008), we suspect the euro's near-term direction will largely depend on the ability of European authorities to reverse the deterioration market sentiment", Wells Fargo says. "While significant risks remain, we still see scope for an easing in the Eurozone bond market tensions and a moderate euro recovery in H2 2012".