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FOREX-Euro’s bounce from 16-month low unlikely to last

FOREX-Euro’s bounce from 16-month low unlikely to last

* Euro slides to $1.2666 in thin Asian trade
* Short-covering on euro positions provides temporary
* Merkel, Sarkozy meet; focus on Spain, Italy debt sales

By Neal Armstrong
LONDON, Jan 9 (Reuters) – The euro crawled back from a
fresh 16-month low to the dollar on Monday as traders trimmed
short positions, but further declines were anticipated as
worries over sovereign funding and  prospects for the euro zone
economy kept most investors bearish.
Markets were awaiting a meeting between German Chancellor
Angela Merkel and French President Nicolas Sarkozy where they
will discuss ways to boost growth and finalise details of a deal
to increase fiscal coordination in the euro zone.

Sentiment took a further hit over the weekend when German
magazine Der Spiegel reported the International Monetary Fund
was losing confidence in Greece’s ability to clean up its public
Also, an adviser to German Finance Minister Wolfgang
Schaeuble told a Greek newspaper a 50 percent writedown on Greek
debt holdings – a key part of the country’s debt swap deal -
would not be enough to put its huge debt on a viable footing.

The euro hit its lowest level since September 2010 of
$1.2666 on trading platform EBS in thin Asian trade, with Tokyo
markets shut for a public holiday. Against the yen, the euro hit
an 11-year low of 97.28 yen.
The single currency later recovered to $1.2780 to trade up
around 0.5 percent for the day.
“This move up in the euro on the day is just position
adjustment as the market is very short euros and that position
increased further after Friday’s U.S. payrolls,” said Lee
Hardman, currency strategist at BTM-UFJ.
U.S. jobs data last Friday highlighted the diverging growth
outlook between the United States and Europe and supported the
greenback but Hardman was sceptical over the potential for
higher U.S. rates.
“The reality is the Fed has made a strong commitment to keep
U.S. interest rates low and we don’t think stronger U.S. data
will be backed with higher rates for the foreseeable future. The
dollar is more likely to continue to strengthen from risk
aversion,” he said.

Focus in the euro zone this week will fall on Spain and
Italy in the run-up to their first bond auctions of the year,
with little sign that investors have started 2012 with improved
appetite for the euro zone’s riskier assets.
The European Central Bank also announces its latest decision
on monetary policy, with most economists forecasting no change
in rates or any fresh liquidity measures after the ECB flooded
the financial system with an unprecedented 489 billion euros of
ultra-cheap three-year loans in December.
Key support for the euro lies near $1.2600, roughly the 76.4
percent retracement of its June 2010 to May 2011 rally and also
the late August 2010 low around $1.2690.
“Newsflow from the euro zone is not helping, particularly
regarding Greece, and markets are also on the defensive ahead of
key event risks this week so there’s not too much reason to be
overweight the euro,” said Geoffrey Yu, currency strategist at
“These are testing times for the currency and the scale of
the recent decline seems to have caught some people by
Some market players said stop-loss offers exacerbated the
euro’s drop in Asia on Monday but the fall was meeting with
bouts of short covering.
Currency speculators boosted short euro positions to record
levels in the week ended Jan. 3, data from the Commodity Futures
Trading Commission showed on Friday.
After finishing 2011 some 13 percent below its year high
near $1.4940, the euro has started 2012 on a weak note, having
shed roughly 1.9 percent so far in January.
The single currency has also fallen to an 8 1/2-year low on
a trade-weighted basis, according to ECB data on Friday.

The dollar held steady against the yen at 76.89 yen,
staying above a two-month low of 76.30 yen hit last week. The
dollar eased from a 16-month high against a currency basket of
81.47 in Asia to stand at 80.984.

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4 Responses to “FOREX-Euro’s bounce from 16-month low unlikely to last”

  1. Sonya Taylor says:

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