Reuters: US Dollar Report: FOREX-Euro weak as sentiment sours before EU summit

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FOREX-Euro weak as sentiment sours before EU summit Jun 25th 2012, 09:09 By Nia Williams LONDON, June 25 | Mon Jun 25, 2012 5:09am EDT LONDON, June 25 (Reuters) - The euro fell broadly on Monday as concerns about stuttering global growth and low expectations of progress in tackling the debt crisis at a European summit later in the week weighed on demand for riskier currencies. Investors were bracing for a disappointing outcome to the European Union summit after a meeting of German, French, Italian and Spanish leaders on Friday saw Chancellor Angela Merkel resist the idea of common debt issuance, although she did agree to a 130 billion euro package to revive growth. Analysts said the market had not expected significant progress at last week's meeting, with Germany having consistently opposed common euro zone debt issuance, but it contributed to the view policymakers were struggling to come up with a plan to control the debt crisis. "There's some nervousness ahead of the EU summit. Reports about the meeting (on Friday) have not intensified hopes or expectations that there will be agreement or any big progress," said Niels Christensen, currency strategist at Nordea. "At best, if we see some small positive steps forward for the banking union it could leave the euro at current levels. But it will be difficult for the euro to stage a lasting rally in the current environment's growth outlook." The euro fell 0.5 percent against the dollar to $1.2504 after filling reported central bank bids around $1.2520. Support was seen near the June 12 low around $1.2441 and strategists said a break below that level would open the door to a test of the June 1 two-year low of $1.2284. The common currency dropped more than 1 percent against the safe-haven yen to 99.98 yen on trading platform EBS. The euro gained only limited support after the European Central Bank last week started to accept a wider range of collateral in its lending operations, in a move designed specifically to help ease the stress in Spain's banking sector. DOLLAR EXTENDS GAINS Data showed speculators trimmed bets against the euro after pro-bailout parties won the June 17 Greek election and soothed some concerns about Athens exiting the euro zone. Net euro short positions fell to 141,066 contracts from 195,187 the previous week, although Nordea's Christensen said the reduction simply gave investors room to initiate fresh short positions if things worsened in the euro zone. Some strategists said the euro could rally in the run-up to the summit if there are signs policymakers will compromise on issues including debt mutualisation, fiscal and banking union and renegotiation of Greece's bailout terms, but investors were likely to be wary. "Hopes ahead of the summit may encourage more short-covering but, as usual, scope for disagreement and disappointment on many fronts suggests that investors should not become overly bullish," said Mitul Kotecha, head of global foreign exchange strategy for Credit Agricole in Hong Kong. Cautious market sentiment helped the dollar index extend gains from last week to hit a two-week high of 82.585. Traders have piled back into the dollar since the Federal Reserve held off on aggressive quantitative easing last week and instead extended its "Operation Twist" programme, under which it sells short-term bonds and buys longer-term securities to lower longer-term interest rates. Commodity currencies also fell against the safe-haven U.S. dollar, extending last week's decline as commodity prices recoiled on the increasingly grim global growth outlook. The Australian dollar dropped 0.5 percent to US$1.0007, with good support expected at $0.9979, the 38.2 percent retracement of its June 1-20 rally. The New Zealand dollar also dipped, falling 0.3 percent to US$0.7870. Link this Share this Digg this Email Reprints

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