--Euro positive despite gloomy German ZEW numbers and "prohibitively"
expensive Spanish T-bill auction
--UK inflation eases, boosting stimulus hopes
--Hungarian forint strengthens on IMF news
By Eva Szalay
The euro crept higher after a bruising start to the week as traders
braced for the slim chance of further monetary easing from the U.S.
Federal Reserve on Wednesday, with the currency stable despite a raft
of negative news, including an expensive Spanish T-bill auction and a
disappointing German business sentiment reading.
Some traders also pointed to unsubstantiated chatter of the European
Central Bank buying under-fire Spanish government bonds as a
contributing factor to the common currency's rise to $1.2620 against
the dollar.
The gains came after a session of erratic moves and disheartening
headlines that showed German economic expectations souring at the
fastest rate for more than a decade. The widely-watched German ZEW
economic expectations index fell to -16.9 in June from May's unrevised
10.8.
"This was the fastest decline in sentiment since the height of the
Russian/Long-Term Capital Management crisis in October 1998," Simon
Derrick, a currency strategist at the Bank of New York Mellon, wrote
in a note to clients.
The currency had earlier dropped to near the day's low of $1.2568
after the German constitutional court ruled that the German government
hadn't informed parliament sufficiently about the configuration of the
European Stability Mechanism. Traders sold the currency aggressively
fearing the decision would throw more hurdles in the way of
policymakers struggling to solve the region's debt crisis. But the
currency staged a quick bounce as the realisation grew that the
decision is just a reiteration of an earlier ruling.
Meanwhile, Spain auctioned 3.039 billion euros ($3.89 billion) of
12-month and 18-month papers, with what Marc Ostwald, an interest rate
strategist at Monument Securities, described as "prohibitively" high
costs. Yields on the 12-month offering almost doubled to 5.074% from
2.985% at the previous sale in May. The average yield on the 18-month
bills came in at 5.107%, up from 3.302%.
The sharp rise in yields came after news that the second part of a
forthcoming audit of Spanish banks would be delayed until September.
The banking audit will be closely watched for determining how much
help the country's banking sector could potentially need.
"Spain needs not only an ESM package to recapitalize its banks, it
also needs an outright bailout package," Mr. Ostwald said.
However, some market-watchers said that large euro losses are unlikely
for now, as the Fed announces its monetary policy stance Wednesday,
with a small chance of further easing.
"Investors are likely to think twice about adding to (negative)
positions in the euro before a potential Fed easing announcement,"
analysts at Danske Bank said in a note to clients.
The pound saw hefty declines after inflation undershot expectations
and slowed to its lowest level in more than two years, boosting
expectations that the central bank would engage in more monetary
easing. The consumer price index rose 2.8% on the year in May against
consensus views of a 3% rise. Sterling hit the day's low at $1.5616.
The Hungarian forint showed strong gains against the euro after news
that Hungary is ready to move on to official talks with the
International Monetary Fund and the European Commission.
At 1054 GMT the euro was trading at $1.2613 compared with $1.2577,
according to EBS via CQG. The currency was at Y99.51 from Y99.47.
Sterling traded at $1.5666 compared with $1.5664.
The dollar was at Y78.81 from Y79.12 and at CHF0.9523 from CHF0.9551,
The ICE Dollar Index, which tracks the U.S. dollar against a basket of
currencies, was at about 81.788 from 81.959.
A summary of key levels for chart-watching technical strategists is below:
Forex spot: EUR/USD USD/JPY GBP/USD USD/CHF
Spot 1016 GMT 1.2625 78.94 1.5664 0.9513
3 Day Trend Bearish Bearish Bullish Range
Weekly Trend Range Range Range Bullish
200 day ma 1.3183 79.62 1.5823 0.9199
3rd Resistance 1.2748 79.51 1.5785 0.9650
2nd Resistance 1.2702 79.31 1.5742 0.9595
1st Resistance 1.2669 79.14 1.5695 0.9565
Pivot* 1.2615 79.03 1.5681 0.9513
1st Support 1.2568 78.78 1.5615 0.9503
2nd Support 1.2557 78.61 1.5599 0.9475
3rd Support 1.2518 78.18 1.5511 0.9420
Forex spot: AUD/USD
Spot 1016 GMT 1.0152
3 Day Trend Bullish
Weekly Trend Bullish
200 day ma 1.0247
3rd Resistance 1.0274
2nd Resistance 1.0247
1st Resistance 1.0225
Pivot* 1.0107
1st Support 1.0104
2nd Support 1.0057
3rd Support 1.0011
Write to Eva Szalay at eva.szalay@dowjones.com
(END) Dow Jones Newswires
June 19, 2012 07:45 ET (11:45 GMT)
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