Reuters: US Dollar Report: FOREX-Euro steady but vulnerable to gloomy ECB outlook

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FOREX-Euro steady but vulnerable to gloomy ECB outlook Dec 6th 2012, 13:06 Thu Dec 6, 2012 8:06am EST * Euro steady against dollar but off recent highs * ECB holds rates, focus on news conference at 1330 GMT * ECB seen cutting growth forecasts, may weigh on euro * German industrial orders unexpectedly jump By Jessica Mortimer LONDON, Dec 5 (Reuters) - The euro was steady against the dollar on Thursday but seen vulnerable to any hint of further interest rate cuts from the European Central Bank at its regular post-policy meeting news conference. The ECB kept interest rates on hold, but this was widely expected and the euro showed little reaction. It was last steady at $1.3065, having retreated from Wednesday's seven-week high of $1.3127. Investors turned their attention to a news conference by the bank's president Mario Draghi at 1330 GMT. Analysts said any hint interest rates could be cut next year would see the euro fall, potentially towards this week's low of $1.2973. The euro traded well below a reported option barrier at $1.3150. "The market is wondering if the ECB will hint at a rate cut to come, and if it does this could point to a weaker euro. But the euro is still in rally mode until it gets back below $1.30," said John Hardy, currency strategist at Saxo Bank. He said rising Spanish and Italian borrowing costs, following weak demand at an auction of Spanish debt on Wednesday, were also weighing on the euro. But some traders said Draghi may be careful to avoid being too negative and could give the euro a slight lift by highlighting recent falls in peripheral euro zone bond yields in the wake of the ECB's pledge to buy the bonds of indebted countries. "I expect Draghi to be slightly optimistic in his tone, emphasising soft data improving, peripheral spreads tightening and the success of the OMT plan," said Amit Patel, a trader at currency hedge fund Sharpe + Sigma, which has assets under management of $80 million. "So the euro will tick higher, but most of this is already in the price. I'd expect any rally to meet decent sell interest in the $1.3120/50 zone." Tempering some of the recent worries about the euro zone economy, data on Thursday showed German industrial orders rose far more than expected in October due to strong demand from abroad, especially from outside the euro zone. EURO OUTLOOK A Reuters poll of economists suggested the euro will probably hold its ground against the dollar over the next month, although a persistently weak euro zone economy could drag it lower in 2013. "Confirmation that the euro zone remains in recession is certainly not providing any underlying support for the euro," said Jeremy Stretch, head of currency strategy at CIBC World Markets. Concerns about the U.S. fiscal debate also tempered any euro's gains, as it tends to weaken in times of uncertainty. There was little sign of progress in the talks, aimed at avoiding the "fiscal cliff", on Wednesday.. The euro slipped by 0.15 percent to 107.63 yen, off a 7-1/2 month high of 107.95 yen hit on Wednesday. The dollar also fell 0.15 percent to 82.35 yen, but it was still not far from an eight-month high of 82.84 yen hit on Nov. 22. The yen was seen staying weak due to expectations of pressure on the Bank of Japan to ease monetary policy following an election on Dec. 16. Elsewhere. the Australian dollar rose 0.4 percent on the day to a 2-1/2 month high of $1.0497, buoyed as surprisingly strong Australian jobs data prompted investors to reduce expectations of further policy easing. Link this Share this Digg this Email Reprints

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