Reuters: US Dollar Report: FOREX-Euro advances for 3rd day as markets await ECB action

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FOREX-Euro advances for 3rd day as markets await ECB action Aug 7th 2012, 16:17 Tue Aug 7, 2012 12:17pm EDT * Euro near one-month high, talk of $1.2450 option barrier * Aussie hits 4-1/2-month high, RBA holds rates steady * Euro/Swiss franc steadies after spiking to five-month high By Gertrude Chavez-Dreyfuss NEW YORK, Aug 7 (Reuters) - The euro rose for a third straight session against the dollar on Tuesday, underpinned by expectations the European Central Bank is prepared to act soon to lower borrowing costs for Spain and Italy. The Australian dollar also rose to its highest in more than four months against the greenback after the country's central bank kept interest rates unchanged at 3.5 percent and dropped few hints about easing soon. Rising expectations that the ECB could step in as early as next month to reduce cripplingly high Spanish and Italian borrowing costs by buying their bonds have sparked a global rally in risky assets since Friday, lifting the euro as well as the Australian dollar. "The euro's getting a lift because there are some plans coming forward from the ECB to help ease the debt crisis," said Brian Kim, currency strategist, at RBS Securities, in Stamford, Connecticut. "Besides, there was too much short pressure on the euro last week. This is sort of an alleviation of those shorts." In midday New York trading, the euro climbed 0.2 percent to $1.2423. It hit a one-month high of $1.2443 on Monday. There was also reported talk of an options barrier at $1.2450. Options players may sell the euro if it climbs close to that level but the euro's rise could gain steam if the barrier is hit. "I see further gains in the euro from here because we have breached key technical levels on the upside," said Sebastien Galy, senior currency strategist at Societe Generale in New York. Intraday bias in the euro remains on the upside for the moment, with the next target at around $1.2764, the 50 percent retracement of the move from the $1.3486 high hit in late February to 1.2040, the more than two-year low struck on July 24. Markets were initially disappointed on Thursday when the ECB failed to take immediate action to stabilize bond markets, as the details of how it intends to do this and how effective it will be remain unclear. But traders took ECB chief Mario Draghi's warning not to bet against the euro seriously and as a result the euro has gained momentum. Italian Prime Minister Mario Monti's victory Tuesday in a vote of confidence on a bill that would cut spending to rein in the deficit also helped the euro. But uncertainties remained. There were concerns about the potential for opposition from Germany, the euro zone's largest country, to any large-scale bond-buying program. "Skeptics remain and the ECB will have to replace rhetoric with action sooner (rather) than later for this upward move to gain any momentum," said Matthew Lifson, senior trader and analyst at Cambridge Mercantile Group in Princeton, New Jersey. "There are still people predicting the $1.2000 level in the euro by year end." 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. SPIKE VS FRANC Late on Monday, the euro briefly rose to its highest in nearly five months against the Swiss franc on trading platform EBS 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 soon dropped back down and was last at 1.2010 francs, continuing to hold just above the Swiss National Bank-imposed floor of 1.20 francs. The Australian dollar was flat on the day versus the dollar, after hitting a high of $1.0604, its strongest since March 20. The Reserve Bank of Australia kept interest rates steady and appeared in no hurry to cut borrowing costs again. But 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. Greater appetite for riskier assets lifted the Canadian dollar to its highest in nearly three months at C$0.9965 per U.S. dollar, while sterling rose 0.3 percent to $1.5652 after UK industrial and manufacturing data was not as bad as expected. The U.S. dollar rose 0.6 percent to 78.72 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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