Reuters: US Dollar Report: FOREX-Euro rests near 2-month high, pinning hopes on ECB

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FOREX-Euro rests near 2-month high, pinning hopes on ECB Sep 6th 2012, 05:52 Thu Sep 6, 2012 1:52am EDT * Markets count down to ECB crisis-fighting measures * Euro stays firm after powering higher * ECB seen waiving seniority on bonds it would buy * Aussie rebounds from 8-week low after jobs data By Hideyuki Sano TOKYO, Sept 6 (Reuters) - The euro held firm near its two-month peak on Thursday, having rallied sharply the previous day on renewed hopes that the European Central Bank may employ new tactics to counter the region's perennial debt crisis. All eyes are on the ECB's policy announcement at 1145 GMT and President Mario Draghi's news conference at 1230 GMT, as market players looked for details of the bank's new bond buying programme. The single currency powered to a high of $1.2621, within easy reach of the two-month high around $1.2638 set on Aug. 31, having recovered nearly five percent from its July 24 low of $1.2042, its lowest level since 2010. "The euro could gain further if the ECB does not cut rates today given that some market players have been expecting a rate cut, even though latest media reports suggest a rate cut is not on the cards this time," said Yunosuke Ikeda, senior FX strategist at Nomura. A break of that previous high could pave the way for a retest of $1.2765/75, a level representing the 50 percent retracement of its February to July drop though many market players may be waiting to sell into a rally around that area especially if the bond buying programme disappoints. "We already know that the ECB is going to buy bonds. We could well see a buy-on-rumour-sell-on-fact type of moves," said Kimihiko Tomita, the head of forex at State Street Bank. The euro's jump on Wednesday came as a string of leaks from euro zone officials provided markets with more confidence that Draghi will try to back up his pledge to do "whatever it takes" to save the euro. The European Central Bank is ready to waive seniority status on government bonds it buys under a new programme which it is set to agree at Thursday's Governing Council meeting, central bank sources told Reuters on Wednesday. Such a step could help encourage private investors to buy debts of troubled countries, as that would mean the ECB would have to bear some of the burden of any losses should a country default. But some market players fret that it could further upset the Bundesbank, which is even uneasy about bond buying itself as it thinks such a step is effectively helping governments' finances and transcends the boundary of a central bank's mandate. Bloomberg also reported on Wednesday that the ECB may buy an unlimited amount of government bonds, helping to boost the single currency. Sources told Reuters, however, that unlimited buying was unlikely as the central bank wanted to have some room for manoeuvre. Sebastien Galy, a strategist at Societe General, said if the euro extended its rise towards $1.2765, he would then target a fall back towards $1.21. "There are a lot of happy thoughts priced into the market and starting to build some long USD positions might well make sense for a tactical correction in global risk," he said. The rally in the euro saw the dollar index retreat to 81.145, near a 3-1/2 month trough of 80.964 plumbed on Friday. Against the yen, the greenback was at 78.42, down a touch from Wednesday's high of 78.54 but still within its familiar range around 78.50 yen. The Australian dollar bounced back from a fresh eight-week low on a wave of short-covering after a surprise fall in Australian jobless rate, though other figures pointed to a soft labour market. The aussie rose 0.3 percent to $1.0220, having plumbed a near low at around $1.0165. Since reaching a high of $1.0615 in early August, the aussie has shed more than 4 U.S. cents as markets grew more bearish about China, Australia's most valuable export market. Elsewhere, the British pound stood at $1.5903, near a four-month high of $1.5940 hit on Wednesday ahead of the Bank of England's policy announcement also on Thursday. No policy change is expected there. Link this Share this Digg this Email Reprints

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