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Euro off 1-mth high as crisis plan optimism ebbs


Euro off 1-mth high after Germany undercuts hope on crisis plan

* Short-covering of euro may ebb, positions seen more square

* Bearish engulfing candlestick may bode ill for euro -trader

* Traders cite talk some offshore funds turning bearish on yen



SINGAPORE, Oct 18 (Reuters) - The euro rose on Tuesday but remained below the previous day's one-month high, having taken a hit after Germany tempered hopes that European leaders would soon come up with a quick, comprehensive solution to the euro zone's debt crisis.

The euro regained some ground after a 1 percent drop the previous day, with market positioning and some technical signals suggesting that its recent short-covering rally may be running out of steam.

German Finance Minister Wolfgang Schaeuble poured cold water on the euro's rally on Monday, saying an Oct. 23 European Union summit would not provide a "definitive solution" to the region's debt crisis.

While some gauges of market positioning suggest speculators may still be short the euro, the amount of their euro bearish bets is likely to have declined over the course of the recent rally, and the euro may now be more vulnerable.

"The rise we saw recently was just a result of markets having gotten ahead of themselves," said Daisuke Karakama, market economist for Mizuho Corporate Bank in Tokyo.

"I think we will start to see it fade," Karakama said, referring to the euro's recent upward momentum. "The euro's outlook from here looks weak," Karakama added.

The euro edged up 0.3 percent from late U.S. trade on Monday to $1.3780 , but remained below a one-month high around $1.3914 hit on Monday on trading platform EBS.

Traders said there were a mixture of buy orders and stop-loss offers in the euro at levels below $1.3750.

Risky assets and the euro have bounced in the past week as investors pared bearish bets after the leaders of Germany and France pledged to unveil a comprehensive package by the end of the month to resolve the euro zone's debt crisis, including an agreement on how to recapitalise banks.

While European leaders may decide on an overall stance to beef up banks' capital at the Oct. 23 EU summit, they will probably opt to decide on specifics at a later date, said Mizuho Corporate Bank's Karakama.

In any event, efforts to recapitalise euro zone banks can carry a cost. If countries in the euro zone were to shoulder the burden their fiscal conditions could worsen, and if money from the euro zone's EFSF (European Financial Stability Facility) rescue fund were to be used, that could rekindle the issue of whether the size of the rescue fund is sufficient, Karakama added.

The Australian dollar edged up 0.4 percent to $1.0218 , supported by short-covering after a 1.7 percent drop the previous day. The Aussie dollar has retreated after hitting a one-month high of $1.0372 on Monday.

A batch of Chinese data were broadly in line with market expectations, confirming that China's economic growth was moderating but not weakening sharply, and had limited impact on the Australian dollar.

The Aussie dollar can be sensitive to shifts in China's economic fundamentals since China is a major buyer of Australia's commodity exports.

BEARISH ENGULFING PATTERN

In a development that could come back to haunt the euro in coming months, Moody's warned on Monday it may slap a negative outlook on France's Aaa credit rating in the next three months if the country fails to make progress on crucial fiscal and economic reforms.

One factor that may bode ill for the euro in the near-term outlook is a bearish engulfing candlestick pattern that appeared on charts on Monday, said Tsutomu Soma, senior manager for Okasan Securities' foreign securities department in Tokyo.

The euro may come under pressure if it drops below last Friday's intraday low near $1.3720, Soma said.

A bearish engulfing candlestick pattern appears on a day when a currency closes below its opening level, after an opposite move the day before. In addition, the gap between the opening and closing levels must be wider than the previous day.

When such a pattern appears after an uptrend, it can be a sign that the trend may start to reverse.

The dollar held steady against the yen at 76.84 , having hit a one-month high near 77.48 yen last week.

"We've heard a number of funds and a number of investors talking about going long dollar/yen," said Rob Ryan, FX strategist at BNP Paribas in Singapore.

Still, it is unclear what types of factors may push dollar/yen higher at this stage, Ryan said. For example, it seems unlikely that Japanese institutional investors will turn aggressive about taking on foreign exchange risk when the yield gap between Japanese and U.S. bonds is pretty narrow.

Indeed, Japan's Fukoku Mutual Life Insurance has said it will cut its net buying of U.S. and German bonds in the half-year to March from its original plan and shift to domestic bonds instead as the yield gap between overseas and Japanese bonds has narrowed sharply.

"We've gone short from 77.40, we're looking for a break lower," said Ryan at BNP Paribas.

 

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EU short of time as Spain downgraded

(Reuters) - A double-notch downgrade to Spain's credit ratings has piled more pressure on European leaders to make rapid progress on solving the region's debt crisis or face unbearable borrowing costs.

The fresh blow from Moody's Investors Service came just a day after the agency warned France its triple-A rating could be at risk and overshadowed a report that Germany and France were nearer a deal on leveraging the euro zone's rescue fund.

"If the euro zone can't figure a way to handle the situation, you are going to see Spanish yields continue to go up, and they are going to have a problem to funding themselves," said Jessica Hoversen, currency and fixed income analyst at MF Global in New York.

Investors are counting down to a summit of EU leaders this weekend that was originally hailed as a watershed event.

Britain's Guardian newspaper on Tuesday said Germany and France had agreed to leverage the euro zone's bailout fund to over 2 trillion euros as part of a "comprehensive plan" but a senior euro zone source poured cold water on the report, telling Reuters that there had been no mention of such a deal.

The report initially caused a sharp rally in shares and the euro, only to be snuffed out by the downgrade to Spain.

Moody's cut the country's bond rating to A1, from Aa2, the third of the major agencies to act in recent weeks and taking it a notch below the ratings of Standard & Poor's and Fitch.

Moody's reasoning made worrying reading for those hoping for a speedy resolution to country's troubles.

"Since placing the ratings under review in late July 2011, no credible resolution of the current sovereign debt crisis has emerged and it will in any event take time for confidence in the area's political cohesion and growth prospects to be fully restored," the agency said.

In the meantime, Spain's large sovereign borrowing needs, heavily indebted banking system and challenging growth outlook left it vulnerable to further downgrades, a judgment that would encompass all too many of EU members.

PINCH OF SALT

The Guardian, citing senior European Union diplomats, had reported the euro zone would endorse a five-fold increase in the 440-billion-euro bailout fund to help troubled governments and banks survive should Greece or any other member default.

The much-touted idea would be for the European Financial Stability Facility (EFSF) to insure the first 20-30 percent of any losses on new government debt.

Brian Dolan, chief strategist at Forex.com in Bedminster, New Jersey, said an expanded $2 trillion bailout fund would be about the right size to restore come confidence.

But he added: "I have to take it with a grain of salt. We've seen a lot of these European reports that something was imminent only to be disappointed the next morning."

Indeed, German policy makers have been doing their best to play down the chances of a ground-breaking deal anytime soon.

German Chancellor Angela Merkel on Tuesday warned that leaders would not solve the debt crisis at a single meeting.

"These sovereign debts have been built up over decades and therefore one cannot resolve them with one summit but it will take difficult, long-term work. Nonetheless, I do think we will also be able to take relevant, important decisions," she said.

Markets have been on edge for fear European leaders would not agree on a plan to address the crisis, which has already forced Greece, Ireland and Portugal to seek bailouts and has driven up borrowing costs in Italy and Spain.

France saw its borrowing costs jump on Tuesday after Moody's warned it may slap a negative outlook on the country's Aaa rating in the next three months if slower growth and the costs of helping to bail out banks stretch its budget too much.

Economy Minister Francois Baroin insisted the rating was not at risk but acknowledged that the 1.75 percent growth forecast on which the government had based its 2012 budget was over-optimistic and would have to be revised down.

"The triple-A is not in danger because we will be even ahead of schedule on passing deficit reduction measures," Baroin said on France 2 television.

"We will do everything to avoid being downgraded."

 

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Nikkei gains on euro zone bailout hopes

(Reuters) - The Nikkei stock average rose on Wednesday after a media report raised expectations that Europe will act to strengthen the euro zone's rescue fund, though skepticism about whether it can put such a bold step into practice limited further gains.

The market also lacked momentum on caution about a mixed batch of U.S. earnings after Apple (AAPL.O) reported a rare miss in quarterly results, with sales of its flagship iPhone falling short of Wall Street expectations.

The Nikkei finance/markets/index?symbol=jp%21n225">.N225 was up 0.6 percent at 8,789.83 by the lunch break, while the broader Topix index .TOPX gained 0.3 percent to 754.04. Trade was extremely light, with turnover at 398 billion yen at midday, just 4 percent above the same time on Tuesday, when it hit the lowest level since December.

Wall Street rallied in its last hour of trade on Tuesday after Britain's Guardian newspaper said France and Germany will increase the euro zone's rescue fund to 2 trillion euros as part of a plan to resolve the sovereign debt crisis.

A senior euro zone source told Reuters there had been no mention of such a deal and many market players doubt whether such a huge increase is immediately possible given how policymakers have had a tough time getting the current 440 billion euro bailout scheme ratified in the euro bloc.

"If they can boost the bailout fund to 2 trillion euro, that would be a perfect score markets have been looking for. But the reality is that will be difficult to pull off," said Norihiro Fujito, a senior investment strategist at Mitsubishi UFJ Morgan Stanley Securities.

While the news prompted short position holders to cover their positions, many investors are still not excited, as manifested in low trading volume, and they preferred to wait until what European leaders will do at their summit on Sunday.

"I'm sure there will be a lot of headlines on the euro zone plan toward the summit and speculators will jump on them, swinging the market this way or that. But real money investors are waiting for the summit. That's why volume is slow," said Mitsubishi's Fujito.

Apple's (AAPL.O) latest results undermined tech shares, although an upbeat earning forecast from Intel Corp (INTC.O) helped counter the impact.

Ibiden (4062.T), a major supplier of integrated circuit packages to the U.S. firm, rose 2.9 percent to 1,896 yen.

Olympus (7733.T) remained the most actively traded share on the Tokyo Stock Exchange's main board for the fourth day in a row as the company suffers from allegations by its former CEO that it made improper M&A fee payments.

Olympus fell 3.2 percent to 1,372 yen, though it has so far managed to stay above Tuesday's 2- year low of 1,281 yen.

Some players were short-selling the stock aggressively while there were bids from investors who saw value in the company's strength in its endoscope business.

Still, doubts about the company's governance is making the stock untouchable for many investors.

"Foreign investors had snatched up the shares after they hired a foreign CEO and they haven't offloaded their holdings yet," said a trader at a Japanese firm.

 

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Euro flat on doubts over EU delivering crisis plan

(Reuters) - The euro was little changed against the dollar and yen on Wednesday due to nagging doubts that European leaders will take aggressive steps at a summit this weekend to resolve the region's debt crisis.

Officials dismissed a report in Britain's Guardian newspaper on Tuesday that France and Germany had agreed to a deal enlarging the European Financial Stability Facility (EFSF), while French President Nicolas Sarkozy said talks to boost the bailout fund have stalled. But investors still clung to the newspaper report as a reason to pare back bets against the euro.

Optimism that a definitive plan would be in place by a European Union summit on Sunday had sparked a rally in the euro last week from 8-1/2-month lows. Germany later tamped down enthusiasm by saying the summit would not provide an ultimate solution to the debt crisis.

"At the end of the day, the market is nervous, waiting to see anything substantial coming out of the summit," said Tom Fitzpatrick, chief technical strategist at CitiFX in New York. "We are getting to a point that there have been so many false promises so they really need to deliver something big."

The euro was last up 0.09 percent at $1.37480 after bouncing between $1.3735 and $1.3870 on trading platform EBS. It touched a one-month high of $1.39148 on Monday.

Wavering confidence about a crisis plan has increased the euro's volatility against the dollar this week. The one-month euro/dollar volatility index ended flat on Wednesday but is up 2.4 percent so far on the week.

The Guardian, citing senior European Union diplomats, said the euro zone would endorse a five-fold increase in the 440 billion euro bailout fund.

But a senior euro zone source told Reuters there had been no mention of such a deal. A spokesman for the German Finance Ministry said the bailout fund will not be raised beyond the 440 billion euros already approved nor will Germany's participation rise beyond 211 billion euros.

German Chancellor Angela Merkel talked down expectations of a deal for a "bazooka" solution coming out of the summit, adding that past errors will not be solved in one stroke.

Germany, the euro zone's strongest economy, has been reluctant to back aggressive measures to contain the crisis due to worries it has already overextended itself as its economy is slowing.

SHORTCOVERING, SOVEREIGN DEMAND

As traders struggle to position for this weekend's EU summit, analysts said there are positive factors for the euro.

Chris Turner, FX strategist at ING, said demand to cover short positions in the euro remained high given that the average entry level of such positions in September was around $1.37. The euro's rally above $1.39 earlier this week put investors at risk of a loss on those positions.

Going into the summit, Turner said, the euro may rally toward $1.40 if more mainstream press reports suggest EU leaders are nearing agreement to take decisive actions.

The euro briefly extended gains against the dollar after data showing U.S. housing starts in September topped expectations boosted the appetite for risk.

Sovereign demand from the Middle East and Asia likely also boosted the euro, traders said, although some doubted it was the dominant driver behind gains.

Against the yen, the euro was up 0.09 percent to 105.61 yen, paring earlier gains.

The single European currency rose 0.5 percent against the Swiss franc to 1.2418 francs, having hit 1.2475 on EBS, the highest level in five months, on persistent, though unconfirmed, market talk of the Swiss National Bank raising the euro/Swiss target rate from 1.20 francs.

Investors shrugged off a double-notch downgrade of Spain's debt rating.

The dollar index was flat at 77.112, while the greenback was flat against the yen at 76.80 yen.

 

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Gold edges up on arbitrage buying

(Reuters) - Gold prices rebounded on Friday, boosted by arbitrage buying interest from Shanghai market, but gains could be limited as uncertainty remains on whether European policymakers would agree on a definitive solution to euro zone's debt crisis.

Deep division among European leaders on strengthening the bloc's rescue fund has dampened hopes that Europe was close to finding a solution, rattling commodities and sending gold down more than 1 percent in the previous session.

Conflicting voices from the euro zone over the past few days have directed the ups and downs of the financial market, and participants are now eyeing the European Union summit this Sunday for further trading cues.

The sharp price drop in the previous session has provided an opportunity for arbitrage trading from Shanghai market, traders said. The most-active Shanghai gold futures contract traded around 336 yuan a gram, or $1,638 an ounce, at a premium of $13 over spot gold prices.

"There was quite some buying from Shanghai after market opened there," said Peter Fung, head of dealing at Wing Fung Precious Metals in Hong Kong.

"Prices appear to be consolidating within the range of $1,550 and $1,700."

Spot gold gained 0.4 percent $1,625.12 an ounce by 0253 GMT, but was headed for a drop of 3.2 percent from a week earlier, its biggest weekly decline in nearly a month.

U.S. gold rose as much as 1.1 percent to $1,630.9, before easing to $1,626.90, on course for a 3.3 percent weekly decline.

Technical analysis suggested spot gold could rebound to $1,650 during the day, said Reuters market analyst Wang Tao.

PHYSICAL DEMAND STEADY, BUYERS EYE FURTHER PRICE FALL

The price dip to near $1,600 in the previous session triggered some physical buying, dealers said.

"There was a fair bit of buying but nothing frantic," said a Singapore-based dealer. "Perhaps the market is expecting a lower price to come."

Physical demand in Asia, mainly India and China, has entered its traditional peak season of the year, but such demand alone is unlikely to lift prices above the current range.

"The main drivers behind prices still remain in the ETF holdings, hedge funds and COMEX market," said the dealer.

Holdings in the world's largest gold-backed exchange-traded fund, SPDR Gold Trust, have remained constant at 1,227.511 tonnes for the past five sessions, down a modest 4.4 tonnes from the end of September.

And holdings of the world's largest silver-backed exchange-traded fund, iShares Silver Trust, edged lower from the previous session to 9,874.05 tonnes, lowest in nearly a month, as silver prices retreated 23 percent from a month earlier.

Spot silver inched up half a percent to $30.65, on course for a weekly decline of 4.7 percent, its biggest one-week fall in a month.

 

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Risk rally hammers dollar, yen hits record high

(Reuters) - The U.S. dollar fell broadly on Friday and hit a record low against the yen on hopes Europe was closer to solving its debt crisis and talk the Federal Reserve may take new measures to boost growth.

France and Germany said in a joint statement that European leaders would discuss a solution to the crisis on Sunday, but no decisions would be adopted before a second meeting to be held by Wednesday at the latest.

Optimism European leaders will take more measures to contain the crisis kept investor appetite for risk alive, sending U.S. stocks sharply higher and dampening demand for the safe-haven greenback.

Adding to losses in the dollar, Fed Board Governor Daniel Tarullo said Thursday there is need for additional stimulus measures and the Fed should consider buying more mortgage bonds to boost the weak housing sector and economy. Fed easing is seen negative for the dollar because it lowers U.S. yields.

"It is very much a dollar negative environment. Risk is on," said Brian Dolan, chief currency strategist at Forex.com in Bedminster, New Jersey.

Against a basket of major currencies, the dollar last traded down 0.8 percent at 76.357, having hit a low of 76.249, the lowest level since mid-September.

Paresh Upadhyaya, head of Americas G10 FX strategy at Bank of America Merrill Lynch in New York, said the currency market followed equity prices.

The U.S. dollar has shown a strong inverse relationship with stocks in recent trading. The 25-day correlation between the dollar index and the Standard & Poor's 500 Index hit negative 0.927 on Friday.

The euro rose 0.7 percent to $1.3876, having hit $1.3900 on Reuters data and recovering from a low of $1.3703.

"The market is giving the benefit of the doubt that they are going to come up with some sort of a meaningful stop gap measure in Europe," said Boris Schlossberg, director of currency research at GFT in New York.

But Bank of America's Upadhyaya said: "whatever might be announced, I don't think it would be enough to satisfy the markets." He expects the euro/dollar to decline to $1.30 by the end of the year.

The euro dropped 0.3 percent to 105.58 yen. It also slipped 0.3 percent against sterling and lost 0.6 percent versus the Swiss francs.

RECORD HIGH YEN

The dollar fell as low as 75.78 yen on trading platform EBS, surpassing its previous record low of 75.941 set in August, bringing back into focus the threat of official intervention to weaken the Japanese currency.

Traders reported initial large selling of dollars from a U.K. clearer and macro funds, and losses accelerated after the pair broke through a series of stops around 76.30 and 75.90.

It last traded down 0.9 percent at 76.18 yen, coming off lows on reported buying from Japanese banks at the 76.00 level. At current levels, it was on pace for its biggest daily fall since August 26.

Talk that Japanese authorities may follow the footsteps of the Swiss National Bank in putting a floor in dollar/yen had buoyed the currency pair in recent sessions, but investors resumed yen buying after market speculation failed to materialize.

"I do think we are increasingly vulnerable to (Bank of Japan) interference. Irrespective of whether it's going to be effective or not, they're going to come in at 75," said GFT's Schlossberg.

 

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Banks raise Greek haircut offer to 40 percent in talks

(Reuters) - Bankers have offered to stretch the voluntary haircut on Greek debt to 40 percent, while politicians demand the private sector agree to writedowns of at least 50 percent, senior German banking source said on Sunday.

Politicians, including German finance minister Wolfgang Schaeuble have asked private creditors to Greece to accept steeper writedowns on their holdings than the 21 percent losses agreed last July.

Politicians and bankers are still wrangling over how to restructure Greek debt as part of negotiations to reform the common currency.

EU officials have also demanded that banks prop up their capital cushions to meet a core tier one capital ratio of 9 percent, in a bid to make the financial system more able to withstand a restructuring of Greek debt.

Banks are seen needing just under 100 billion euros with the bulk required by banks in Greece, Spain and Portugal.

Big name banks caught in the crossfire will have to raise less than they feared two weeks ago, and should be able to raise it privately, through existing shareholders or sovereign funds, bankers and analysts said.

To meet the more stringent capital requirements, even large lenders like Deutsche Bank (DBKGn.DE) and Commerzbank (CBKG.DE) are being asked to bulk up their capital position.

Deutsche needs an additional 2 billion euros which it can raise via retained earnings, shedding risk weighted assets, and via a small capital increase if needed, the senior German banking source, who declined to be named, said on Sunday.

The private sector is still striving to reach a deal on Greek debt writedowns by Sunday, another source said.

In July, banks and insurers agreed to contribute 50 billion euros ($69 billion) to reducing Greece's debt via a debt buyback and swap agreement, which equated to a 21 percent writedown. That is now seen as insufficient to make Athens' debt sustainable.

Deutsche Bank (DBKGn.DE) analysts last week outlined a way for banks to contribute a 40 percent "haircut" on Greek sovereign debt without substantially changing the terms of July's debt-relief deal.

 

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Gold inches up on hopes for Europe debt deal

(Reuters) - Spot gold prices edged higher on Monday, after European leaders moved closer to a concrete plan to solve euro zone's debt crisis during a weekend meeting, lifting sentiment in commodities and equities.

FUNDAMENTALS

Spot gold edged up 0.2 percent to $1,642.99 an ounce by 0022 GMT, after losing more than 2 percent last week.

U.S. gold gained half a percent to $1,645.

European Union leaders made some progress toward a strategy to fight the euro zone's sovereign debt crisis on Sunday, but the final decision was deferred until a second summit on Wednesday.

Money managers, including hedge funds and other large speculators, slashed their bullish bets in gold futures and options, as the price of bullion fell on a lack of safe-haven buying.

Holdings of the world's largest gold-backed exchange-traded fund, SPDR Gold Trust, remained unchanged, while holdings of iShares Silver Trust edged lower from the previous session.

MARKET NEWS

The euro held its ground against the dollar early in Asia on Monday with markets still clinging to hopes that European policy-makers were moving a step closer to resolving the region's debt crisis.

The S&P 500 posted its third straight week of gains on Friday, lifted by optimism before this weekend's summit of European leaders and strong earnings from blue-chip stocks.

 

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Analysis: Nikkei, European shares and Gold rising on hopes for Europe debt deal.


Monday, October 24th, 2011.


The Nikkei stock has risen an average of two percent this Monday after signs of progress in the plan to contain the eurozone’s debt crisis.

The Nikkei finished up 1.9 percent at 8,843.98,recouping more than twice the 0.8 percent it lost last week. The broader Topix index rose 1.5 percent to 755.44.

As well the progress made by European Leaders towards a strategy to fight the debt crisis this weekend lead to a rising of European shares. At 0841 GMT, the FTSEurofirst 300 .FTEU3 index of top European shares was up 0.2 percent at 980.33 points, after rising 2.5 percent on Friday, and notching up four weeks of gains. However, Greek banks .FTATBNK fell 15 percent on worries that a deeper markdown on Greek government bonds held by the private sector would force lenders to seek state support to recapitalize.


Finally Gold also inches up on the weekend advances, edging up spot gold 0.2% by 0022 GMT after losing more than two percent last week. U.S. gold gained 0.5% reaching $ 1645 an ounce.

Holdings of the world’s largest gold-backed exchange-traded fund, SPDR Gold Trust, remained unchanged, while holdings of iShares Silver Trust edged lower from the previous session.

(Source: Reuters)