Reuters: US Dollar Report: FOREX-Euro firmer after Italy auction, U.S. GDP eyed

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FOREX-Euro firmer after Italy auction, U.S. GDP eyed Apr 27th 2012, 12:10 Fri Apr 27, 2012 8:10am EDT * Euro cuts losses, but outlook cloudy * Italy bond auction goes smoothly, tempers periphery worry * U.S. GDP data up next, could trigger some swings By Neal Armstrong LONDON, April 27 (Reuters) - The euro recouped losses on Friday after a smooth Italian bond auction calmed renewed jitters over peripheral euro zone debt markets sparked by a downgrade of Spain's sovereign debt and dismal Spanish economic data. But investors are bearish about the euro's outlook and were selling at higher levels. That view stemmed from Standard & Poor's decision to cut Spain's credit rating to BBB-plus from A, and assigning a negative outlook. The ratings agency on Friday also warned there were downside risks to almost all euro zone sovereign ratings. Spanish data released on Friday highlighted the extent of weakness in the highly indebted country, with nearly a quarter of the nation's workforce unemployed and retail sales falling for 21 consecutive months. The euro initially fell to a session low of $1.3157 in European trade but recovered to a high of $1.3243 after Italy sold 5.95 billion euros of bonds, in an auction which analysts said went well. It was last trading at $1.3230, up 0.2 percent on the day, with near-term resistance at its three-week high of $1.32635 struck on Thursday. "I'm a bit surprised at the euro's resilience but part of the explanation is that the currency channel isn't the cleanest way to express discomfort with the periphery," said Daragh Maher, currency strategist at HSBC. "If you don't like Spain you sell their bonds and buy German Bunds so the currency impact is muted," he added. Spanish 10-year bond yields moved back above 6 percent on Friday, while investors sought safety in German bond futures which rose to record highs. Traders said the euro would have weakened further but for the extent of bearish positions already established in the common currency. U.S. GDP data due at 1230 GMT could see some volatility and a solid report would reinforce the diverging growth paths between the U.S. and Europe, traders said. Analysts are forecasting the U.S. economy grew at an annualised 2.5 percent in the first quarter of 2012, slowing from 3 percent in the last quarter of 2011, but still much better than the prospects of a recession in the euro zone. "If we get a GDP number that is in line with expectations we could see the dollar supported against the yen and the Swiss franc," said Chris Walker, currency strategist at UBS. "But it will also help risk and the Australian dollar and sterling could benefit." The dollar index was steady at 78.921, just above a 3-1/2-week low of 78.823 plumbed on Thursday. YEN FIRMS The yen was firmer against the dollar and the euro after further easing measures from the Bank of Japan were seen as incremental rather than significant steps to try and dig the Japanese economy out of the doldrums. The Bank increased bond buying by 10 trillion yen, expanding the target of its purchases to bonds with up to three years left to maturity from those with two years or less, and increased its buying of exchange-traded funds (ETFs). The Bank also extend the period of its asset purchases to June next year from December. The dollar was down 0.4 percent at 80.64 yen, off overnight highs of 81.45 as Japanese exporters were quick to buy the Japanese currency after hype about the BOJ's easing for weeks. Market players said the BOJ's easing was no bazooka that would push the dollar beyond its 11-month peak of 84.187 hit last month. "Now that the BOJ meeting is out of the way, we expect dollar/yen to come back under pressure," Morgan Stanley strategists said in a note. "International yield curve dynamics, the main driver of dollar/yen, are providing negative signals. We maintain our short position, and think a break below the 80.30 yen level will trigger a renewed decline." Traders say the dollar has strong support from the cloud top of its weekly Ichimoku charts at 80.42. Another pivotal point will be 80.10, a 50 percent retracement of its rally from February to March. Meanwhile, sterling rose to a near 8-month high against the dollar, climbing to $1.6236 as investors priced out chances of more quantitative easing from the Bank of England. Link this Share this Digg this Email Reprints

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