The euro rose on Monday as investors used later-denied reports on Italy going to the IMF to unwind some bearish positions, with many still downbeat about the single currency's prospects given scepticism about leaders' ability to resolve the debt crisis.
Investor attention was focussed on Belgian bond auctions later in the day, with the country looking to raise one to two billion euros at considerably higher costs after Standard & Poor's cut the country's credit rating late on Friday.
Belgium's benchmark 10-year yield has risen to near the 6 percent level, taking it closer to levels at which countries such as Portugal and Ireland had to start considering bailouts.
With Italy, France and Spain also looking to sell debt this week, analysts said the euro is likely to trade more in sync with bond yields. Borrowing costs for all three European countries have risen in recent days as contagion from the debt crisis spread, keeping the euro pinned near recent lows.
The euro rose 1 percent on the day to $1.3383, buoyed by players covering bets on losses that have begun to look stretched and extending gains after stop loss orders were triggered through $1.3355 and $1.3370. Traders said leveraged investors were buying the euro with more stops said to be above $1.3420.
The euro was also helped by gains for stock markets, driven by an unsourced report in Italian daily La Stampa that 600 billion euros could be made available at a rate of between 4-5 percent to give Italy breathing space for 18 months.
An IMF spokesperson said there were no discussions with the Italian authorities on a program for IMF financing and the amount the paper cited was well above the Fund's entire loan stock.
"The IMF report was denied and this brings the market's focus back to how critical a stage the sovereign debt crisis is at," said Jane Foley, senior currency analyst at Rabobank.
"The euro looks very vulnerable in a week where there is an awful amount of (debt) supply from euro zone countries. Trade will be directional and will be based on how the response is to these auctions."
Selling pressure on the euro intensified last week in the wake of a weak bond auction in Germany, the euro zone's safest haven. Italy's short-term debt sale on Friday was also poorly received, sending Italian two-year yields to a euro-era high above 8 percent.
Currency speculators increased their bearish bets against the euro in the latest week to Nov. 15. Steady selling has driven the currency down 7 percent against the U.S. dollar from a high of $1.4248 reached on Oct. 27 to a trough near $1.3213 on Nov. 25. It is more or less flat for the year.
SELLING INTO A REBOUND
Italian 10-year spreads over German bunds narrowed on Monday with dealers citing support from the European Central Bank, but overall sentiment towards euro zone assets remains bearish with investors seeking a comprehensive and quick solution from policymakers to contain the debt damage.
Morgan Stanley said reports of IMF funding for Italy and suggestion of "elite bonds" by triple-A rated countries were likely to provide only short-term relief to the euro and as such they maintain their medium term bearish view on the euro.
Germany denied a media report which said it was considering issuing joint bonds along with five other triple-A rated countries.
But officials have made clear that Germany and France are now exploring radical methods of securing deeper and more rapid fiscal integration among euro zone countries, even if they are aware that getting broad backing for the necessary treaty changes may not be possible.
Euro zone finance ministers will meet on Tuesday where detailed operational rules for the euro zone's bailout fund are ready for approval, documents obtained by Reuters showed. The meeting could also sign off Greece's 8 billion euro aid tranche.
"Whether progress on both of these can deliver a euro boost is doubtful, with the market focus moving on," said Tom Levinson, currency strategist at ING. "In this respect, after last week's poor bund auction, French and Belgium auctions will be watched closely."
The escalating debt crisis was starting to hurt the real economy, with the Organisation for Economic Co-operation and Development saying that euro zone powerhouse Germany appears to have entered a mild recession in the fourth quarter of 2011.
The latest bounce in the euro saw the dollar index fall 1 percent to 78.815, retreating from a two-month peak of 79.702 set Friday.
Against the yen, the dollar dipped 0.1 percent to 77.67 while it lost over 1 percent against the Swiss franc to trade at 0.9182 francs.
Commodity currencies outperformed the euro, with the Australian dollar surging more than 2 percent to $0.9945 , having climbed to a one-week high of $0.9955. The New Zealand dollar also 2.4 percent to $0.7566.
read more: Olympus Wealth Management
No comments:
Post a Comment