6:34, Wednesday 9 March 2011
* EU summit on Friday fuels euro uncertainty
* Oil prices slip, further supporting dollar
* Dollar/yen rises, but gains seen limited (Updates prices, adds quote)
TOKYO, March 9 (Reuters) – The euro fell for a thirdstraight session against the dollar on Wednesday, with furtherlosses likely, as investors were unconvinced that Friday’sEuropean summit would quell concerns about the region’s fiscalproblems.
The U.S. dollar also rose against most of the majorcurrencies, helped by a retreat in oil prices. Lower oil pricestend to help the greenback as it reduces U.S. crude oil imports.
Traders said short-term support for the euro is at $1.3862,the high on Feb 2. As long as the euro stays above that level,the uptrend for the currency remains intact, although a breakbelow it should target the $1.3710-12 area, last week’s low.
The market’s focus is pinned on a European Union summit onFriday. Seventeen heads of state expected to agree on acomprehensive pact that will attempt to overhaul the euro zoneeconomies, which should help to avert a future debt crisis.
Analysts, however, said Friday’s meeting was unlikely toyield results. For a preview on the EU summit, click on .
“The proximity to Friday’s EU summit is making peoplenervous about the euro,” said David Forrester, senior currencystrategist at Barclays Capital in Singapore. “Near term we arebearish on the euro. We see the euro at $1.38 over a one-monthperiod.”
Barclays (LSE: BARC.L – news) has remained positive on the euro over the longerhaul. it raised its forecast on the euro over a six-month and12-month period to $1.42 and $1.45, respectively, supported byearlier than expected European Central Bank rate hikes.
in late Tokyo trading, the euro was down 0.2 percent at$1.3879, retreating further from Monday’s four-month peak of$1.4036 on electronic trading platform EBS . That jumpin the euro was a carry-over from last week’s tough inflationtalk by ECB President Jean-Claude Trichet, who surprised marketsby flagging a possible rate hike as early as next month.
on the charts, George Davis, chief technical analyst RBC (MCX: RBCI.ME – news)Dominion Securities in Toronto, said key Fibonacci levels arecurrently at play, helping to limit the rally in the euro.
For the long term, Davis cited the 50 percent Fibonacciretracement of the 2008-2010 decline at $1.3960, which is actingas resistance to the euro’s advance.
on a medium-term basis, there was also the 61.8 percentFibonacci retracement of the November (Berlin: NBXB.BE – news) 2009-June 2010 decline at$1.3898, Davis said, and on a short-term horizon, the 76.4percent retracement of the November 2010-January 2011 slide at$1.3948. Both levels have also curbed the euro’s gains.
Overall, with an interest rate hike looming in the eurozone, the euro’s outlook has remained positive on a medium-termhorizon, although traders said there was caution in the optionsmarket.
according to flows data from Credit Suisse (NYSEArca: CSMA – news) , there was buyingof bearish euro option structures overnight against sterling,the Swiss franc and the U.S. dollar.
in addition, one-month euro/dollar implied volatility edgedup on Wednesday, trading at 10.05 percent , from 9.95percent on Tuesday. That suggested slightly higher expectationsof fluctuations in the currency’s value.
In general, volatility tends to rise when a currency isfalling.
The stance in the options market on the euro reflects somenervousness among investors that upcoming ECB rate hikes couldcripple the peripheral economies in the euro zone.
The dollar also rose against the yen, gaining 0.3 percent to82.80 yen , helped by a generally rising trend in U.S.Treasury yields. on Wednesday, yields were flat, with two-yearTreasuries at 0.729 percent, while 10-year yields slipped to3.546 percent from 3.555 percent the previous session.
Dollar/yen is the currency pair most sensitive to movementsin bond yields because both low-yielding units compete as themarket’s favored funding currencies for the purchase of riskyassets. any shift in the yield curve or rate expectationstypically impacts both currencies.
Fund managers have been buyers of dollar/yen in recentweeks, according to UBS (NYSEArca: DJCI – news) , although the bank said choppy U.S.yields have limited gains in the currency pair. UBS said itsclients have bought $1 billion worth of dollar/yen so far thisyear, considered paltry given the pair’s deep liquidity. Theaverage daily volume in dollar/yen is about $140 billion.
The retreat in oil prices also helped the dollar’s cause.Brent crude for April delivery fell 0.5 percent to$112.52 per barrel. That helped the greenback move higheragainst the Swiss franc to 0.9366 franc , up 0.2percent, for a second straight day of gains versus the Swisscurrency. Currency bid prices at 1:13 a.m. EST (0613 GMT). all data takenfrom Reuters calculated from the levels at 4:30 p.m.(2130 GMT)in the previous new York (Xetra: A0DKRK – news) session.
last US Close Pct YTD Pct 2010
March 8 Change Change Close ————————————————————- Euro/dlr 1.3881 1.3903 -0.16 +3.77 1.3377 Dlr/yen 82.870 82.660 +0.25 +2.12 81.150 Euro/yen 115.05 114.92 +0.11 +5.91 108.63 Dlr/swiss 0.9363 0.9350 +0.14 +0.30 0.9335 Stg/dlr 1.6147 1.6160 -0.08 +3.51 1.5599 Dlr/cad 0.9708 0.9713 -0.05 -2.60 0.9967 Aus/dlr 1.0069 1.0095 -0.26 -1.31 1.0203 Euro/swiss 1.2998 1.3003 -0.04 +4.08 1.2488 Euro/stg 0.8594 0.8602 -0.09 +0.26 0.8572 Nzd/dlr 0.7381 0.7391 -0.14 -5.26 0.7791 Dlr/Norw 5.5798 5.5840 -0.08 -4.16 5.8218 Euro/Norw 7.7482 7.7620 -0.18 -0.53 7.7895 Dlr/Swed 6.3690 6.3646 +0.07 -5.08 6.7098 Euro/Swed 8.8405 8.8527 -0.14 -1.56 8.9809 all spots Tokyo spots Europe (Chicago Options: ^REURTRUSD – news) spots Volatilities Tokyo Forex market info from BOJ World central bank news Economic Forecasts… Official rates… Forex Diary……. Top events…….. Diaries……….. Diaries Index…….. Press Digests….. Polls on G7 economies.. European markets…… (Reporting by Gertrude Chavez-Dreyfuss)
