Reuters: US Dollar Report: FOREX-Euro steady, investors hold fire before summit

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FOREX-Euro steady, investors hold fire before summit Jun 27th 2012, 08:34 Wed Jun 27, 2012 4:34am EDT * Euro flat vs dollar, strong support around $1.2440 * Little progress on debt crisis expected at EU summit * Market eyes Italian bill auction By Nia Williams LONDON, June 27 (Reuters) - The euro steadied against the dollar on Wednesday after hitting a two-week low the previous day, but looked vulnerable ahead of a European Union summit that is not expected to deliver new measures to ease the region's debt crisis. A quick move toward the issuance of common euro zone bonds appeared less likely than ever after German Chancellor Angela Merkel was quoted as saying Europe would not share total debt liability "as long as I live". Analysts said most investors were reluctant to sell the euro aggresively ahead of the two-day summit starting on Thursday, in case any progress in tackling the debt crisis is made. But the longer term outlook for the currency was gloomy. "People are waiting for the inevitable - which is that policymakers will probably fail to do what is necessary," said Neil Mellor, currency analyst at Bank of New York Mellon. "There's still the tantalising possibility there may be some give and take at the summit, so there's a degree of giving the euro the benefit of the doubt. But the long-term downtrend is distinctly negative." The euro was close to flat at $1.2491, recovering from a fall to a two-week low of $1.2441 hit on Tuesday on trading platform EBS, a level seen as providing strong technical support. The next major downside target is a two-year low of $1.2288 hit on June 1. In addition to Merkel's comments, the euro was also put under pressure on Tuesday by a rise in Spanish bond yields after demand for the country's short-term debt fell at auction despite the significantly higher returns on offer. In another test of investor appetite for peripheral debt that could hit the euro if yields rise significantly, Italy will auction up to 9 billion euros of six-month bills later in the session, With Cyprus having become the fifth euro zone country to request financial aid, many market players said signs that contagion was intensifying would weigh heavily on the euro in coming months. "The euro could see a break below $1.20 by year-end. I'm focusing more on just how far it might go if it drops below $1.20," said Daisuke Karakama, market economist for Mizuho Corporate Bank in Tokyo Against the yen, the euro regained some ground after hitting a two-week low of 98.74 the previous day, rising 0.2 percent to 99.50 yen. JAPANESE POLITICS The dollar rose 0.2 percent to 79.63 yen, but held below a two-month high of 80.63 yen hit earlier this week. Some market players said political uncertainty stemming from a rift inside Japan's ruling party could start to weigh on the yen, although investors outside of Japan may be unsure of the implications for the currency. "International investors have been burned so many times by trying to trade dollar/yen around Japanese political events. They are happy to watch the story unfold but unwilling to take positions, in FX at least," said Gareth Berry, associate director of G10 FX strategy for UBS in Singapore. Prime Minister Yoshihiko Noda faces the risk of a split in his party that could trigger a snap election after his signature tax increase plan cleared parliament's lower house on Tuesday despite its rejection by a group of party rebels. The hike is aimed at curbing Japan's snowballing public debt, which already exceeds two years' worth of its economic output. Commodity currencies were steadier against the safe-haven dollar after coming under pressure earlier in the week. The Australian dollar was flat at US$1.0055, while the New Zealand dollar dipped 0.1 percent to US$0.7891. Link this Share this Digg this Email Reprints

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