Reuters: US Dollar Report: FOREX-Euro falls on rebalancing flows, Spain uncertainty persists

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FOREX-Euro falls on rebalancing flows, Spain uncertainty persists Sep 28th 2012, 16:15 Fri Sep 28, 2012 12:15pm EDT * Month and quarter end flows hurt euro * Euro seen weighed by possible Moody's review on Spain debt * Uncertainty over Spain aid request remains * Euro faces chart resistance at $1.2960 By Julie Haviv NEW YORK, Sept 28 (Reuters) - The euro fell broadly on Friday as month- and quarter-end rebalancing flows favored the U.S. dollar and as market participants remained unsure whether Spain's recently unveiled budget would pave the way for it seeking financial help. The euro, however, at current prices fared well against the greenback in September, appreciating 2.1 percent. In the third quarter the euro zone common currency gained 1.5 percent, its best performance since the first quarter of this year. The euro's performance was largely a reflection of quelled debt crisis fears brought on by calming comments made during the summer by European Central Bank President Mario Draghi and the central bank's announcement this month that it would buy bonds from heavily indebted countries. Analysts, however, said the euro's gains may be limited as long as uncertainty persisted over when and whether Spain, the euro zone's fourth-largest economy, will request a bailout. Longer term, concerns Spain would be unable to implement its budget plans and bring down its deficit could weigh on the common currency. A bailout request by Spain is a precondition for the European Central Bank to start buying its debt to bring down its borrowing costs. Analysts and traders said this would lift the euro, but Spain has appeared reluctant to take that step. "But the euro may struggle to sustain gains for very long with investors skeptical over how successful Madrid would be in implementing the measures, while others fretted the country could soon see its credit rating cut to non-investment grade or so-called junk status," said Joe Manimbo, senior market analyst at Western Union Business Solutions in Washington D.C. The euro was last down 0.6 percent at $1.2842, not far from Thursday's two-week low of $1.2828. Madrid announced a detailed plan for economic reforms and a budget based mainly on spending cuts rather than tax measures, in what many analyst saw as an effort to pre-empt the conditions for a bailout. MORE HURDLES Moody's rating agency is due to review Spain's sovereign rating by the end of this month and may downgrade it to junk status, while the Spanish government is also due to publish its full evaluation of the banking sector on Friday. "I expect the euro to gradually decline. There's a risk of credit downgrade on Spain. The talk between Greece and the troika may get nowhere. And the euro zone economy will be fragile," said Minori Uchida, chief currency analyst at the Bank of Tokyo-Mitsubishi UFJ in Tokyo. Indeed, much of the euro zone is mired in a recession, which should keep ECB monetary policy accommodative for quite some time. A rate cut may be in the pipeline as well, perhaps as soon as its monthly policy meeting next Thursday, analysts said. On Thursday, ratings agency Egan-Jones cut Spain's sovereign rating further into junk status, citing the country's banks and struggling regional governments. The euro faces chart resistance at $1.2960, the 38.2 percent retracement of its Sept. 17-27 slide. The 200-day moving average around $1.2825 is expected to serve as solid support, however. The Spanish budget goes to parliament on Saturday and debates could last weeks. Spain's 17 autonomous regions still must present budgets and find an additional five billion euros in adjustments to meet overall public deficit reduction goals. The euro last traded down 0.1 percent at 100.14 yen, recovering from Thursday's two-week low of 99.64. The dollar also gained against the yen, trading 0.4 percent higher at 77.92 yen, according to Reuters data. Link this Share this Digg this Email Reprints

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