Reuters: US Dollar Report: FOREX-Euro falls as summit hope fades, yen jumps

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FOREX-Euro falls as summit hope fades, yen jumps Jun 25th 2012, 16:27 Mon Jun 25, 2012 12:27pm EDT * Investors pessimistic ahead of EU summit * Merkel worried EU focused on "easy" crisis solutions * Dollar index rises to near two-week high By Wanfeng Zhou NEW YORK, June 25 (Reuters) - The euro fell to its lowest in almost two weeks against the dollar on Monday and looked set to extend losses as investors doubted a European summit later in the week would find a solution to the region's escalating debt crisis. Investors parked money in perceived safe havens, driving up the dollar and pushing the yen almost 2 percent higher against the euro. Higher-yielding riskier currencies such as the Australian and New Zealand dollars tumbled. Expectations for the two-day EU summit are quite low after a meeting of the euro zone's four biggest economies on Friday, at which Germany resisted pressure for common euro zone bonds or a more flexible use of Europe's rescue fund. A German government spokesman said on Monday that Chancellor Angela Merkel was worried that just before the summit, people were expressing a wish for "supposedly easy solutions" such as shared liability. "Again we are likely to get frustrated on the lack of a solution for the debt crisis," said Brad Bechtel, managing director at Faros Trading in Stamford, Connecticut. "We are only likely to receive the telegraphed European 'blueprint' for the way forward, something that is long term in nature and several referendum and parliamentary wrangling sessions away from here." The euro fell as low as $1.2469, the weakest since June 12, and was last down 0.7 percent at $1.2478. 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 $1.2286. Spain formally requested euro zone rescue loans for up to 100 billion euros ($125 billion) to recapitalize its debt-laden banks, saying the final amount of financial assistance would be set at a later stage. Some market economists believe the rescue is merely a prelude to a full bailout for the Spanish state, which saw its annual borrowing costs soar to euro era record levels above 7 percent early last week before easing. Against the yen, the dollar fell 1.1 percent at 79.52 yen . The euro lost 1.8 percent to 99.22 yen. A German government spokesman said the EU probably will not take any decisions on Greece at this week's summit, dashing Athens' hopes it might ease the terms of its bailout. EURO SHORTS Analysts said market positioning has pulled back from extreme levels in the latest week, setting the stage up for another move lower in the euro. Data from the Commodity Futures Trading Commission showed Friday that net euro short positions fell to 141,066 contracts in the week ending June 19, well below a record high of 214,418 contracts reached in early June. "An undramatic summit result could be a catalyst for speculative accounts to reset short positions in the euro and growth-sensitive currencies," Credit Suisse wrote in a note to clients. "We remain bullish on the U.S. dollar heading into this week's events." Weak euro zone economic data and rising borrowing costs for peripheral countries will likely heap pressure on the European Central Bank to cut interest rates or expand liquidity operations, prospects likely to keep the euro subdued. "You have economic growth in the States probably running at about a 2 percent annualized rate, and you've got growth in Europe a lot slower than that, so therefore in the relative growth scenario you would still favor the U.S. and that's probably attracting cross-border flows," said Ken Dickson, investment director of currencies at Standard Life Investment. The dollar index hit a near two-week high of 82.632 and was last up 0.3 percent at 82.536. 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" program, under which it sells short-term bonds and buys longer-term securities to lower longer-term interest rates. The Australian dollar fell 0.8 percent to $0.9980. The New Zealand dollar dipped 0.4 percent to $0.7856. Link this Share this Digg this Email Reprints

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