December 29th, 2011

FOREX-The euro tumbled to its lowest level against the dollar since September 2010 in thin European trading Thursday after Italy’s final bond auctions of 2011 proved less than outstanding and year-end flows continued to support the dollar.

The single currency fell to $1.2858 against the dollar, extending Wednesday’s declines, while it also took a hit against the safe-haven Swiss franc and yen, falling to a fresh 10-year low against the Japanese currency.

Italy’s cost of borrowing fell slightly but the Italian Treasury only managed to sell EUR7.017 billion out of a maximum EUR8.5 billion, disappointing some market participants who had hoped for a repeat performance of yesterday’s super-successful short-term debt auction, where six-month borrowing costs were halved.

“If you look at a like-for-like comparison with the previous auction in November you get better yields, but it’s still expensive and they did not allot the full amount. So overall it’s a pretty bad auction, so that’s why the euro is falling,” said Chris Walker, currency strategist at UBS AG in London.

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December 14th, 2011

FOREX – The euro hit its lowest level in nearly a year against the dollar and fell more than 1% on the day against the greenback and the yen, with renewed concern over the debt crisis.

A report indicating that Germany remains steadfastly opposed to expanding the euro zone’s bailout fund put pressure on the euro. Germany rejects raising the EUR500 billion lending limit for the planned European Stability Mechanism, or ESM, Chancellor Angela Merkel told a meeting of her ruling party Tuesday, underscoring a rift at a recent European Union summit over the capacity of the euro zone’s debt crisis firewall.

Countering fears that Germany’s overall contribution to euro-zone rescues may rise further, Merkel stressed during a meeting with lawmakers of the Christian Democrats that a planned increase of funds to the International Monetary Fund by Germany’s Bundesbank was independent of government commitments to the ESM, a coalition official present at the meeting said.

Disagreement over whether to lift the EUR500 billion cap was one of the areas of discord that emerged during the EU summit last week.

The European Stability Mechanism, or ESM, will replace the temporary European Financial Stability Fund sometime next year.

“The euro remains a sell,” said Joe Manimbo, a market analyst at Travelex Global Business Payments in Washington. He added investors want to see “a willingness by the European Central Bank to ramp up government bond purchases. That would buy more time for officials, but we need some type of comprehensive solution that has been elusive to date.”

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December 9th, 2011

FOREX-The euro was marginally higher Friday as European Union leaders ended two days of talks on the future of the common currency with an agreement to introduce tougher fiscal rules for the 17 euro-zone nations.

“There was some increase in risk appetite because the leaders came up with something and at least made some progress,” said David Watt, senior currency strategist at RBC Capital Markets in Toronto. “If the market decides to look for details, there might be some disappointment next week.”

The leaders promised to increase the financial backstops to countries with debt problems by channelling EUR200 billion of funds to the International Monetary Fund. However, they put off until March a decision on a proposal to lift the EUR500 billion cap on the funds available to the European Stability Mechanism.

It also remains to be seen if the deal agreed upon Friday will convince the European Central Bank to intervene more forcefully in the sovereign bond market. ECB President Mario Draghi Thursday sent a very clear message that he would not, dashing market expectations that the ECB would step up its bond purchases once a convincing political solution to the crisis was in place.

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December 6th, 2011

FOREX – The euro was little changed Tuesday, as investors anticipated that Friday’s European Union summit might yield a breakthrough on the Continent’s debt crisis, even as Standard & Poor’s warned that many of the sovereign credit ratings within the 17-nation currency bloc were being jeopardized by mounting financial and political turmoil.

Late Monday, S&P placed the ratings of 15 euro-zone nations on negative credit watch, signaling there was a 50% chance of a downgrade within 90 days if policymakers are unable to craft a solution to the debt crisis causing upheaval across global markets.

In a move that jolted investors, the firm singled out several members of Europe’s triple-A club, including Germany and France – the euro zone’s two largest and most stable economies. On Tuesday, the firm warned that in the event of a member nation’s downgrade, Europe’s newly-inaugurated bailout fund could also see its AAA-rating marked down.

The announcement comes at a delicate time. Markets are largely in stasis ahead of a pivotal EU meeting, where officials are expected to offer policy changes to sanction fiscally-wayward members. European officials are also said to be negotiating an increase in the bloc’s bailout fund, which analysts say is insufficient to prevent the growing possibility that Italy and Spain could be shut out of capital markets.

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December 5th, 2011

FOREX – The euro ground higher against the dollar in European trading Monday as bond markets welcomed a new austerity plan in Italy and currency dealers were broadly optimistic at the start of a crucial week for the single currency, which is scheduled to end with a summit of European Union leaders.

Yields on benchmark Italian 10-year government bonds extended the previous week’s decline, dropping to 6.3% and leading other peripheral euro-zone bond yields down with them. The relief shown in bond markets, coupled with hopes for a positive breakthrough in the euro zone’s long-running debt crisis, helped to lift the euro to as high as $1.3460 against the dollar. It also touched CHF1.24 against the franc for the first time in two weeks.

“The reason the euro is doing better is because of all the optimism about the Italian government unveiling the austerity measures on Sunday. It’s giving hope to traders that something (positive) will happen (later this week),” said Ankita Dudani, currency strategist at Royal Bank of Scotland.

“Even though we have been here before, people are still giving (European policymakers) the benefit of the doubt,” she added, noting that with a high number of negative euro-bets still in the market there is a potential for the single currency to climb further as these bets are unwound.

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November 29th, 2011

FOREX – The euro held onto its modest gains against the dollar and the yen in Asia Tuesday, with optimism toward the eurozone debt crisis and position-squaring giving temporary support to the single currency.

Traders are focusing on a two-meeting of European finance ministers starting later in the day to see if they can flesh out plans to leverage the European Financial Stability Facility, the region’s bailout fund.

In late October, euro-zone leaders agreed to leverage the EUR440-billion EFSF to EUR1 trillion as part of a comprehensive agreement to resolve the debt crisis.

“I’m wondering if we should hold out too much hope for this sort of meeting, as the outcome mostly failed to live up to expectations in the past,” said Dai Sato, senior vice president of the foreign exchange division at Mizuho Corporate Bank.

At 0450 GMT, the euro was at $1.3342 from $1.3320 in late New York trade Monday, according to EBS via CQG. It was at Y104.19 from Y103.84.

Barclays Capital chief currency strategist Masafumi Yamamoto echoed skepticism over the meeting, saying Europe’s debt problems aren’t improving at all and aren’t something that can be solved by a gathering of leaders alone. “There is a high chance the current market optimism toward the meeting will turn to disappointment soon,” he said.

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