Reuters: US Dollar Report: FOREX-Euro slides as Spain budget eyed

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FOREX-Euro slides as Spain budget eyed Mar 29th 2012, 14:21 Thu Mar 29, 2012 10:21am EDT * Euro falls, stop-loss orders triggered below $1.33 * Italy auction solid but market nervous on Spain * Yen firms as equity markets slide By Luciana Lopez NEW YORK, March 29 (Reuters) - The euro slid against the dollar and the yen on Thursday as investors fretted that a Spanish budget due on Friday could show the euro zone nation with little recourse to dig its way out its debt dilemma. The yen also benefited from flows ahead of the close of Japan's fiscal year on March 31, with data showing weaker-than-expected U.S. initial jobless claims also adding to the market's nervousness. In Spain, workers slowed public transport to a crawl and disrupted factories to protest Prime Minister Mariano Rajoy's sweeping reforms a day before a new round of budget cuts. That budget "is a very dicey game," said Karl Schamotta, senior markets strategist with Western Union Business Solutions. An austere document could spur relief in bond markets, "however, the reality is that that will slow growth and cause problems for them down the road," he said. "If the budget is on the softer side, we could see bond markets capitulating and participants concerned that we are not seeing enough resolve." For trading, that means volatility ahead, Schamotta said. Italian and Spanish yields were already rising on Thursday despite a broadly successful sale of Italian bonds, as investors switched into low-risk German debt. The euro fell 0.25 percent to $1.3281 and touched its lowest since the start of the week. Traders said automatic stop-loss sell orders were triggered on the euro's break below $1.33 after the European Commission's economic sentiment index dipped by 0.1 percent, with sentiment in industry worsening markedly. Analysts said the euro was unlikely to break out of its recent range of roughly $1.30 to $1.35, with market players expecting a euro zone finance ministers' meeting to approve bolstering the region's rescue fund on Friday. "Given we are below $1.33 this is certainly a psychologically important mark, which may be the beginning of a more sustained down move," said Caroline Hecht, currency strategist at Commerzbank. "If euro zone finance ministers decide the rescue package will be enlarged that will be calming for the market but we expect the risk premia on peripheral countries' yields to remain quite high." Expectations over the size of the rescue fund have been tempered by European Central Bank governing council member Jens Weidmann, who is also the Bundesbank chief, who warned that raising the firewall around stricken euro zone members would only buy time. YEN FIRMS BROADLY The euro fell 1.11 percent on the day to 109.09 yen , with the Japanese currency gaining broadly on demand linked to the end of Japan's financial year and as European and U.S. equity markets followed Asian bourses into negative territory. The last day for spot trading in the business year to March 31 was on Wednesday, but real-money flows from Tokyo kept major currencies under pressure against the yen, with exporters selling the dollar in large amounts, market players said. U.S. data also added to safe-haven demand. While new jobless claims fell last week, the number was higher than expected, and the previous week's figure was revised higher. The dollar fell 0.87 percent to 82.13 yen and touched a near three-week low, triggering reported stop-loss orders on the break of 82.35/40. But many strategists said the dollar should reassert itself against the yen as long as upcoming U.S. data does not bear out a recent rise in concerns about growth. "There's definitely a lot of month-end and quarter-end rebalancing, but the bigger story we are seeing is some bond buying and equity selling in the last 24 hours," said Geoff Kendrick, currency strategist at Nomura. "But assuming U.S. economic numbers next week are okay we could see U.S. yields back up to the top of their recent range and that could be very dollar/yen supportive." Link this Share this Digg this Email Reprints

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