Categorized | Forex

FOREX-Euro gets respite, but stays under pressure

FOREX-Euro gets respite, but stays under pressure

* Euro off 4-month low, helped by short-covering
* Speculators’ euro short positions hit record high
* Markets cautious ahead of EU summit this week

By Anirban Nag
LONDON, May 21 (Reuters) – The euro traded firm above recent
four-month low on Monday as some investors who had bet on the
currency falling booked profits, but deep-seated concerns about
financial turmoil in Greece and Spain will keep it under
pressure.
The common currency earned respite from this month’s
relentless bout of selling, as speculators who had piled up a
record amount of bets against it cut some of those positions.
The euro was steady at $1.2781, well above Friday’s
four-month low of $1.2642 struck on trading platform EBS. The
euro has managed to stay above its 2012 low of $1.2624, a major
support, a break of which would take the single currency back
down to levels not seen since August 2010.
Traders cited sell-side stops above $1.2835 with plenty of
offers ahead of that level, all of which is likely to see the
euro struggle to make strong gains.
“It is a bounce, but I …still think it is a sell on
rallies, not just against the dollar but also the yen,” said
Jeremy Stretch, head of currency research at CIBC World Markets.
“That 2012 low is still the target and the euro would need a
catalyst for that. That could come if the informal (EU) leaders’
meeting this week offers no consensus (on tackling the euro zone
debt crisis).”
French President Francois Hollande and other like-minded
euro zone leaders are expected to promote the idea of mutualised
European debt at an informal summit in Brussels on Wednesday, a
proposal likely to meet with entrenched opposition from European
paymaster Germany.
The French proposal follows a rapid worsening of the crisis
over the past few weeks and increasing uncertainty whether
Greece will stay in the euro zone. Concerns about Spanish banks
have also weighed on sentiment.
These factors are likely to encourage investors to make more
bearish bets against the common currency as many are unconvinced
by the potential effectiveness of firewall measures already in
place to stem contagion from a possible Greek exit.

RECORD SHORT POSITIONS
Those worries have seen investors dumping the euro in the
past few weeks with many seeking the relative safety of the
dollar, the yen and even sterling.
The U.S. Commodity Futures Trading Commission said on Friday
speculators’ short euro positions climbed to 173,869 contracts,
the highest on record, while their bets in favour of the dollar
against other currencies also rose to the highest level since at
least mid-2008.
“A Greek exit would produce significant contagion to other
peripheral countries, where both sovereigns and banks would come
under pressure. Limiting the damage of contagion would depend
crucially on the speed and magnitude of the policy response,”
JPMorgan analysts wrote in a report.
So far, there is little in the form of a credible policy
response. The euro drew little help from Saturday’s comments on
growth from a summit of the G8 leading industrialised nations,
which markets viewed as short on details and long on rhetoric.
Chinese Premier Wen Jiabao called on Sunday for additional
efforts to support growth, providing some support for reeling
Chinese shares, but concerns about the slowdown in emerging
economies remained.
With sentiment jittery across global financial markets, the
safe-haven dollar and yen were still preferred. The dollar was
up 0.4 percent against the yen at 79.30 yen, well above a
three-month low around 79.00 set on Friday.

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