Reuters: US Dollar Report: FOREX-Euro drops to 3-week low vs dollar as ECB and Fed contrast

Reuters: US Dollar Report Reuters.com is your source for breaking news, business, financial and investing news, including personal finance and stocks. Reuters is the leading global provider of news, financial information and technology solutions to the world's media, financial institutions, businesses and individuals. // via fulltextrssfeed.com

FOREX-Euro drops to 3-week low vs dollar as ECB and Fed contrast Apr 4th 2012, 21:07 Wed Apr 4, 2012 5:07pm EDT * ECB leaves rates unchanged; Draghi sees downside risks * Options market points to more euro downside * US dollar extends gains after Fed curbs QE speculation By Julie Haviv NEW YORK, April 4 (Reuters) - The euro dropped to a three-week low against the U.S. dollar on Wednesday after European Central Bank president Mario Draghi said the euro zone economic outlook is subject to downside risks, leaving the door open for more policy action. The euro came under pressure as Draghi's dovish comments contrasted with minutes from the U.S. Federal Reserve's March policy meeting, released on Tuesday, that showed U.S. policymakers were less keen on adding monetary stimulus as the American economy improves. Draghi's comments, which came in a news conference after the ECB, as expected, announced it was holding interest rates at 1.0 percent. Wi th the U.S. economy improving, U.S. short term rates could start rising before those in the euro zone, removing a key weakness for the U.S. dollar. The euro is down 1.5 percent against the dollar this week, its worst three-day fall since March 2. After breaking below its 100-day simple moving average at $1.3155, a bearish sign, analysts are watching $1.31 for signs of support. Chris Fernandes, vice president, senior foreign exchange advisor for the capital markets division at Bank of the West in San Ramon, California, said he expects a downward test of the EUR/USD's recent range of $1.3000-$1.3500. "That's because expectations of a third round of Fed quantitative easing have receded and Spain remains an area of concern in regards to their ability to achieve their deficit targets." The Fed's two rounds of bond buying, or quantitative easng (QE), were negative for the dollar as they were tantamount to printing money. Fernandes, who helps oversee the capital markets division's almost $10 billion in assets under management, which includes currencies, said significant euro technical resistance is at $1.3380, a level it has hit or neared several times over the past week. The U.S. monthly payrolls and unemployment report due Friday report may cause EUR/USD to break below $1.3000 if payrolls rise by 200,000 or more, he said. Prior to the comments from ECB's Draghi, the euro was already under pressure after Spain's borrowing costs jumped at a bond auction. In the options market, three-month risk reversals in euro/dollar showed a bias for euro put options, reaching session low volatities of -2.28 on Wednesday versus -1.75 on Tuesday. While euro options look biased towards the downside longer term, there was some buying of call options for June on Wednesday, according to Matthew Schilling, a broker at RJO FUTURES in Chicago. "Traders are buying puts for the September options," he said. "I believe that currencies that are paired with the U.S. dollar are going to stay within defined ranges for the next few months until we get more confirmation on what the Fed plans to do this year." The euro last traded at $1.3142, down 0.7 percent on the day against the dollar. The session's trough of $1.3105 was its lowest since March 16. Implied volatility on three-month euro/dollar options , a gauge of expectations regarding a currency's price action, rose to a three week high of 10.45 percent. It was at 9.95 percent on Tuesday. "The market has been locked into a range because there was no dominant FX theme. Now it looks as if higher U.S. rates and concern on Spanish debt could be the short-term drivers, opening up room for higher volatility," said Steven Englander, head of G10 strategy at CitiFX, a division of Citigroup in New York. The common currency also struggled against the yen, falling more than 1.0 percent on the day to 107.88 yen, its lowest since March 13. It was last at 108.32, down 1.1 percent. The yen regained ground against the dollar after coming under heavy selling pressure following the Fed minutes and the spike in U.S. Treasury yields. The greenback was last down 0.5 percent on the day at 82.42 yen, retreating from a session high of 82.93 yen. Link this Share this Digg this Email Reprints

You are receiving this email because you subscribed to this feed at blogtrottr.com. If you no longer wish to receive these emails, you can unsubscribe from this feed, or manage all your subscriptions