http://www.reuters.com/article/2011/12/19/us-markets-forex-idUSTRE7AC15W20111219
Euro retreats as Draghi warns of risks to economy
Euro nudges near 11-month low
By Gertrude Chavez-Dreyfuss
NEW YORK | Mon Dec 19, 2011 4:25pm EST
(Reuters) - The euro fell on Monday as European Central Bank President Mario Draghi stressed the risks to euro zone economic growth arising from the region's debt crisis and dampened hopes for more aggressive bond purchases that have helped keep yields under control.
The death of North Korean leader Kim Jong-il supported a safety bid for the U.S. dollar, with investors selling Asian currencies as well as the Australian and New Zealand dollars. His death over the weekend raised questions about who is in real control of the nuclear renegade state.
In late afternoon trading, the euro was down 0.3 percent at $1.29980 against the dollar, within a cent of the 11-month low touched last week. The euro, which fell on Monday after two days of gains, posted a low of $1.29830 on trading platform EBS.
An agreement by euro zone finance ministers to give the International Monetary Fund 150 billion euros in bilateral loans to help resolve the debt crisis failed to spark buying in the euro. Traders said markets were a tad disappointed because they were expecting loans of 200 billion euros to the IMF.
"It's the same old theme. The market absorbed the ratings warnings and downgrade last week, which was no big deal, but Draghi came in and downplayed ECB aggressiveness," said Win Thin, global head of emerging currency strategy at Brown Brothers Harriman in New York.
"The market doesn't expect bold action from Europe, but at the same time, they think European Union leaders will do enough to keep the euro from exploding. So that sort of muddle-through approach does not sit well with the market."
In testimony to the European Parliament, Draghi on Monday painted a less upbeat picture for the euro zone next year, saying 2012 will be difficult for banks and recovery in economic activity in the region is likely to be slow. He also said ECB purchases of peripheral debt is temporary and "not infinite," disappointing investors who were hoping for further bond buying that would keep yields stable.
A warning by Fitch Ratings on Friday that it could downgrade France and six other euro zone countries and a ratings cut by Moody's on Belgium, also on Friday, added to pressure on the euro in general. Overall, however, given the negative implications of the ratings actions, most investors said the euro held up relatively well.
"The risk to the euro is heavily biased to the downside, but that would be good for Europe," said Stephen Jen, managing director at hedge fund SLJ Macro Partners in London.
"The more the Germans are in control, the more likely that the crisis-hit countries will undertake reforms, which in my opinion is the single most important pre-condition for investors to return to these bond markets."
In the near term, however, extreme positioning in the euro by speculative investors could result in the euro zone currency consolidating its losses as investors scale back bearish bets. Brown Brothers' Thin said the euro could retrace some of its losses, with support around the $1.30 area.
But with EU leaders still searching for a credible long-term solution to bolster the euro, any rallies are simply expected to provide selling opportunities.
In line with its falls versus the dollar, the euro was down 0.2 percent against the Swiss franc at 1.21842, after it fell below the 200-day simple moving average. The Swiss National Bank left its cap on the currency unchanged at 1.20 francs last week.
The euro did pare some losses against the franc after Swiss National Bank Chairman Philipp Hildebrand said on Swiss TV that the central bank would do all it can to defend the exchange rate, though that impact was fleeting.
The euro zone single currency was also down 0.1 percent versus sterling at 83.84 pence.
The euro remains highly vulnerable to more ratings downgrade in the European Union after EU leaders failed to come up with a convincing solution to the debt crisis at a summit earlier this month.
Traders said a break of last week's low against the dollar would open up a possible test of the 2011 trough around $1.2860, although Audrey Childe-Freeman, EMEA head of currency strategy at JP Morgan Private Bank in London, said much of the bad news has already been priced into the euro by investors.
In other currencies, the dollar was up 0.1 percent against the franc at 0.9373 franc, and gained 0.3 percent against the yen to 78.038 yen.
The Australian dollar was last down 0.8 percent at US$0.9882, while the New Zealand dollar was also down 0.8 percent at US$0.7542.
"Regional currencies remain pressured, but so far is there no long-term implication" of Kim Jong-il's death, said Omer Esiner, chief strategist at Commonwealth Foreign Exchange,
(Additional reporting by Nick Olivari; Editing by Leslie Adler)
Euro retreats as Draghi warns of risks to economy
Euro nudges near 11-month low
By Gertrude Chavez-Dreyfuss
NEW YORK | Mon Dec 19, 2011 4:25pm EST
(Reuters) - The euro fell on Monday as European Central Bank President Mario Draghi stressed the risks to euro zone economic growth arising from the region's debt crisis and dampened hopes for more aggressive bond purchases that have helped keep yields under control.
The death of North Korean leader Kim Jong-il supported a safety bid for the U.S. dollar, with investors selling Asian currencies as well as the Australian and New Zealand dollars. His death over the weekend raised questions about who is in real control of the nuclear renegade state.
In late afternoon trading, the euro was down 0.3 percent at $1.29980 against the dollar, within a cent of the 11-month low touched last week. The euro, which fell on Monday after two days of gains, posted a low of $1.29830 on trading platform EBS.
An agreement by euro zone finance ministers to give the International Monetary Fund 150 billion euros in bilateral loans to help resolve the debt crisis failed to spark buying in the euro. Traders said markets were a tad disappointed because they were expecting loans of 200 billion euros to the IMF.
"It's the same old theme. The market absorbed the ratings warnings and downgrade last week, which was no big deal, but Draghi came in and downplayed ECB aggressiveness," said Win Thin, global head of emerging currency strategy at Brown Brothers Harriman in New York.
"The market doesn't expect bold action from Europe, but at the same time, they think European Union leaders will do enough to keep the euro from exploding. So that sort of muddle-through approach does not sit well with the market."
In testimony to the European Parliament, Draghi on Monday painted a less upbeat picture for the euro zone next year, saying 2012 will be difficult for banks and recovery in economic activity in the region is likely to be slow. He also said ECB purchases of peripheral debt is temporary and "not infinite," disappointing investors who were hoping for further bond buying that would keep yields stable.
A warning by Fitch Ratings on Friday that it could downgrade France and six other euro zone countries and a ratings cut by Moody's on Belgium, also on Friday, added to pressure on the euro in general. Overall, however, given the negative implications of the ratings actions, most investors said the euro held up relatively well.
"The risk to the euro is heavily biased to the downside, but that would be good for Europe," said Stephen Jen, managing director at hedge fund SLJ Macro Partners in London.
"The more the Germans are in control, the more likely that the crisis-hit countries will undertake reforms, which in my opinion is the single most important pre-condition for investors to return to these bond markets."
In the near term, however, extreme positioning in the euro by speculative investors could result in the euro zone currency consolidating its losses as investors scale back bearish bets.
But with EU leaders still searching for a credible long-term solution to bolster the euro, any rallies are simply expected to provide selling opportunities.
In line with its falls versus the dollar, the euro was down 0.2 percent against the Swiss franc at 1.21842, after it fell below the 200-day simple moving average. The Swiss National Bank left its cap on the currency unchanged at 1.20 francs last week.
The euro did pare some losses against the franc after Swiss National Bank Chairman Philipp Hildebrand said on Swiss TV that the central bank would do all it can to defend the exchange rate, though that impact was fleeting.
The euro zone single currency was also down 0.1 percent versus sterling at 83.84 pence.
The euro remains highly vulnerable to more ratings downgrade in the European Union after EU leaders failed to come up with a convincing solution to the debt crisis at a summit earlier this month.
Traders said a break of last week's low against the dollar would open up a possible test of the 2011 trough around $1.2860, although Audrey Childe-Freeman, EMEA head of currency strategy at JP Morgan Private Bank in London, said much of the bad news has already been priced into the euro by investors.
In other currencies, the dollar was up 0.1 percent against the franc at 0.9373 franc, and gained 0.3 percent against the yen to 78.038 yen.
The Australian dollar was last down 0.8 percent at US$0.9882, while the New Zealand dollar was also down 0.8 percent at US$0.7542.
"Regional currencies remain pressured, but so far is there no long-term implication" of Kim Jong-il's death, said Omer Esiner, chief strategist at Commonwealth Foreign Exchange,
(Additional reporting by Nick Olivari; Editing by Leslie Adler)