Reuters: US Dollar Report: FOREX-Euro falters but drop contained on ECB hopes

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FOREX-Euro falters but drop contained on ECB hopes Jul 30th 2012, 05:50 Mon Jul 30, 2012 1:50am EDT * Euro pulls back from three-week high hit on Friday * Failure to achieve weekly reversal weighs on euro -analyst * Hopes of ECB action this week underpin sentiment By Masayuki Kitano SINGAPORE, July 30 (Reuters) - The euro slipped on Monday as short-term technical charts flashed a bearish signal, but its losses were limited by hopes the European Central Bank will soon launch fresh action to tackle the euro zone's debt crisis. The single currency's downside was likely to be limited ahead of an ECB policy meeting on Thursday, with the focus on whether it will reactivate its bond-buying programme to help cut Spanish and Italian borrowing costs. The euro shed 0.3 percent to $1.2293, retreating from a three-week high of $1.2390 hit on Friday, but still holding more than two cents above a two-year low of $1.2042 hit last Tuesday on trading platform EBS. Its failure on Friday to close above a key technical level near $1.2325 was weighing on the single currency for now, said Callum Henderson, global head of FX research for Standard Chartered Bank in Singapore. "That was a short-term bearish signal on the charts," he said, adding that the single currency had failed to form a key reversal pattern on weekly charts. Still, the single currency's downside could be limited in the next few days, Henderson said, adding that the euro would probably stay range-bound until the ECB meeting. "Clearly, if nothing is announced that would be a massive disappointment... But there is an expectation that we're going to see something meaningful on Thursday," he said. ECB President Mario Draghi pledged last week to do whatever was necessary to protect the euro zone from collapse, spawning hopes that the ECB would act to lower borrowing costs for highly indebted member countries such as Spain and Italy. But highlighting resistance against such a move, German Economy Minister Philipp Roesler warned the ECB about any large-scale government bond purchases. Analysts say ECB bond-buying by itself will not resolve the fiscal issues of indebted countries like Spain, and is unlikely to change the euro's weak overall trend. Such action, however, could spur more short-covering in the euro in the near-term, they say. OPPORTUNITY TO SELL? The euro might initially rise to around $1.25 and 100 yen if the ECB resumes bond purchases, said Daisuke Karakama, market economist for Mizuho Corporate Bank in Tokyo. "But I think that should be seen as a golden opportunity to sell into a rally, a chance to sell that the ECB will have helped set the stage for," Karakama said. "Unless progress is made toward fiscal consolidation in Spain, the SMP won't make everything okay," Karakama said, referring to the ECB's bond buying programme, known as the Securities Markets Programme (SMP). The euro fell 0.4 percent to 96.31 yen but remained above last week's low of 94.12 yen, its lowest level against the Japanese currency in more than 11-1/2 years. Among the biggest beneficiaries of the recent improvement in risk sentiment are so-called high-beta currencies such as the Australian dollar, which are particularly sensitive to shifts in investor risk appetite and market expectations for global economic growth. The Aussie reached a four-month high around $1.0498 in early Asian trade on Monday. It last stood at $1.0465, down 0.1 percent from late U.S. trade on Friday. A clear break of the psychologically key $1.0500 level will open up the way to $1.0556, a level representing the 76.4 percent retracement of the late February to early June fall. Over the past few days, investors have shunned the dollar and the yen, safe-havens usually bought in times of heightened market stress. The dollar wallowed near a three-week trough against a basket of major currencies. Against the yen, the dollar eased 0.1 percent to 78.35 yen . Markets will also be keeping an eye on U.S. Treasury Secretary Timothy Geithner, who will meet German Finance Minister Wolfgang Schaeuble and Draghi on Monday. The U.S. Treasury said Geithner and the officials will discuss the U.S., European and global economies. Link this Share this Digg this Email Reprints

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