Reuters: US Dollar Report: FOREX-Euro vulnerable as poor PMI data darkens outlook

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FOREX-Euro vulnerable as poor PMI data darkens outlook Jul 24th 2012, 09:01 Tue Jul 24, 2012 5:01am EDT * Euro hurt by weak German, euro zone PMI data * Moody's changes German rating outlook to negative * Troika visits Athens to relaunch economic plan By Nia Williams LONDON, July 24 (Reuters) - The euro fell against the dollar on Tuesday after weak German economic data fuelled concerns about slowing growth in Europe's largest economy, and looked likely to extend losses on mounting concerns Spain may need a full bailout. The German purchasing manager index (PMI) figures came a day after ratings agency Moody's changed its outlook for Germany, the Netherlands and Luxembourg to negative, warning that Europe's top-rated countries may have to increase support for indebted states such as Spain and Italy. Analysts said worries that more Spanish regions will follow Valencia and request financial aid from Madrid would keep Spanish bond yields high and encourage investors to sell the single currency. Data showing China's manufacturing output grew at its fastest pace in nine months gave the euro only a brief lift, with the overall trend for the currency remaining strongly negative. "The China data lifted sentiment at the margin but you have to keep in perspective how big was the (euro's) bounce. Generally speaking the trend is down," said George Saravelos, FX strategist at Deutsche Bank. "The PMI numbers were weak as expected, and the risk is that the ECB (European Central Bank) will potentially ease more." The euro dipped 0.1 percent to $1.2106, retreating from a session high of $1.2138 hit shortly after the Chinese figures. It touched a two-year low of $1.2067 on Monday when Spanish bond yields hit euro-era highs. Traders said there was support at an options barrier at $1.2050 and below that at the psychological level of $1.2000. Below there the next target would be the 2010 low at $1.1876. The German PMI showed manufacturing and services activity shrinking in July. It followed a French manufacturing PMI survey that was also well below forecasts, highlighting how even the euro zone's core economies are suffering. Private sector activity in the euro zone as a whole also shrank for a sixth successive month, which data collector Markit said was consistent with a quarterly GDP fall of 0.6 percent. Weak growth and the deteriorating situation in Spain kept alive the possibility of a further interest rate cut or cash injection from the ECB, which could give investors even less incentive to hold the euro. Since the ECB's rate cut earlier this month it has fallen heavily against a range of currencies, including those which usually fall in times of heightened risk aversion. It last traded at A$1.1776 against the Australian dollar, close to Monday's record low of A$1.1690, and at C$1.2342 versus the Canadian dollar, also near a record low of C$1.2277 hit on Monday. The euro fell 0.3 percent against the safe-haven yen to 94.70 yen, holding above Monday's low of 94.23 yen, its lowest in nearly 12 years. TROIKA VISITS GREECE The near-term outlook for riskier currencies, including the euro, is likely to be driven by the outcome of a visit to Athens by inspectors from the troika of international lenders whose bailout loans are keeping Greece from going bust. Greece's economic plans have stalled in recent months, raising concerns it will not be given more funds unless it makes deeper spending cuts and sticks to the terms of its bailout. Investor appetite to take on risk could take a further knock from U.S. gross domestic product figures on Friday that are expected to show slowing growth in the world's largest economy. Poor U.S. data may slow the euro's decline against the dollar even as it falls against other currencies. "Europe is in focus, but we need to keep in mind that disappointing U.S. data would make more U.S. easing steps likely, which could weigh on the dollar," said a market participant in Tokyo. The safe haven dollar eased slightly against a basket of major currencies after hitting a two-year high of on Monday. The dollar index was at 83.752, down from the high of 83.999. Link this Share this Digg this Email Reprints

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