Reuters: US Dollar Report: FOREX-Euro firm as bets on ECB action grow

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FOREX-Euro firm as bets on ECB action grow Aug 7th 2012, 08:15 Tue Aug 7, 2012 4:17am EDT * Euro near 1-month high, talk of option barrier at $1.2450 * Aussie hits 4-1/2 month high, RBA holds rates steady * Euro/Swiss franc off five-month high By Anirban Nag LONDON, Aug 7 (Reuters) - The euro climbed on Tuesday, hovering near a one-month high against the dollar and supported by expectations the European Central Bank will act soon to lower borrowing costs for Spain and Italy. The Australian dollar also rose to its highest in more than four months after the central bank kept interest rates unchanged at 3.5 percent and dropped few hints it was in a hurry to ease again. Rising expectations that the ECB could step in as early as next month to reduce crippling Spanish and Italian borrowing costs have sparked a global rally in risky assets since Friday, giving a lift to the euro as well as the Australian dollar. Although details of how the ECB will stabilise the euro zone's bond markets are unclear, traders and analysts say the fact that the central bank is willing to take bold and decisive measures could see the euro eke out further gains. The euro was 0.2 percent higher at $1.2425, having hit a one-month high of $1.2444 on Monday on trading platform EBS, its highest since early July. Near-term resistance is seen at around $1.2470, the 61.8 percent retracement of its drop from a mid-June peak to a two-year low of $1.2042 hit in late July. "We are expecting the euro to rise to $1.26 in a month's time and $1.30 in three months partly due to renewed optimism about the euro zone and partly because of the dollar's weakness," said Michael Sneyd, FX strategist at BNP Paribas. "The main obstacle is Spain and even there we think it is only a matter of time before they seek aid. They do have a bit more time to sort out their position." Prime Minister Mariano Rajoy hinted last week Spain was not far from formally requesting help from the euro zone rescue funds although he wanted to know what conditions would be attached. Last week, the ECB indicated any intervention in the sovereign bond markets would not come before September and such a move would come only if governments first applied for assistance from the rescue funds. Traders cited talk of an option barrier in the euro at $1.2450. That suggested options players may sell the euro if it climbs close to the barrier, but also means the euro's rise could gain steam if the barrier level is actually hit. EURO SPIKES BRIEFLY VS FRANC The euro briefly rose to its highest in nearly five months against the Swiss franc on trading platform EBS late on Monday after a slew of computer generated orders pushed it higher, traders said. EBS daily charts showed the euro rose to 1.20928 francs after 2000 GMT on Monday from around 1.2015 in a matter of minutes as the algorithmic orders were executed. The euro later dropped back to 1.20163 francs, holding above the Swiss National Bank-imposed floor of 1.20 francs. The Australian dollar hit a high of $1.0604, its strongest since March 20, after the Reserve Bank of Australia (RBA) kept its cash rate steady, saying it was too soon to gauge the full impact of past reductions. The RBA's reference to the Australian dollar in its accompanying statement caught some analysts' attention. The central bank said the currency's exchange rate remains high despite a drop in the terms of trade. "It seems to be a new line from them, that there may be more of a divide between underlying fundamentals and the strength in the exchange rate," said Todd Elmer, currency strategist at Citi in Singapore. However, there probably is not much the RBA can do to oppose the strength in the Aussie, Elmer added. The U.S. dollar edged up 0.1 percent to 78.33 yen, staying above a two-month low of 77.90 yen struck last week. Link this Share this Digg this Email Reprints

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