Euro rally fades a bit as focus turns to data

SYDNEY Thu Jun 30, 2011 7:36pm EDT

A picture illustration taken in Warsaw on January 18, 2011, shows a one euro coin. REUTERS/Kacper Pempel

A picture illustration taken in Warsaw on January 18, 2011, shows a one euro coin.

Credit: Reuters/Kacper Pempel

SYDNEY (Reuters) - The euro took a bit of a breather in Asia on Friday after this week's rally with market focus turning to an upcoming batch of economic data, now that Greece looked set to secure emergency funds and avert imminent bankruptcy.

Due around 0100 GMT, China's official purchasing manager's index for June is expected to show a further slowdown in factory activity in the world's second biggest economy.

A better-than-expected reading, however, could see an extension of this week's bullish trades that have pushed stocks, the euro and commodity currencies sharply higher.

"With Greece passing the votes to clear the way for the next tranche of EU/IMF support, the key to a move to EUR/USD 1.50 and beyond is confirmation that the soft patch is not something much more sinister," Societe Generale strategists wrote in a note.

"ISM and payrolls loom, but we are expect July/August to see a friendlier environment for the euro, a less friendly one for yen and dollar."

On Thursday, data showed factory activity in the U.S. Midwest accelerated in June, ahead of the national ISM manufacturing report due later on Friday.

The euro last traded at $1.4490, down from $1.4504 late in New York, where it topped out near $1.4539 -- highs not seen since June 10.

It has rallied some 3 percent from Monday's trough around $1.4100 in a dramatic week that saw market sentiment swing from abject fear that Greece will go bankrupt to euphoria that it will live to fight another day.

Also supporting the euro's rebound, the European Central Bank signaled it would raise interest rates again next week as data on Thursday showed inflation in June stabilized well above the bank's target.

Immediate resistance for the common currency is seen at the overnight high, with the 55-day moving average at $1.4403 likely to provide support.

This left the dollar index .DXY, which tracks its performance against a basket of major currencies, languishing at near three-week lows. It last stood at 74.428, after falling as low as 74.255.

Against the yen, the dollar was at 80.66, down from this week's high above 81.00. Still, it stayed well within a 79.50-82.20 range seen in the last two months.

Commodity currencies were among the star performers this week. The Australian dollar rallied some 3.0 percent from Monday's trough to a high of $1.0750. It has since given back a bit of ground to trade at $1.0714.

Sterling again the biggest loser, falling to 15-month lows on the euro and a 26-year trough on the Aussie, as analysts slash UK growth forecasts after a run of dismal data.

The Canadian dollar also gained around 3.0 percent from Monday's trough to $0.9640 per dollar, further helped by better-than-expected data on Thursday showing the economy stalled, rather than contracted in April.

This report, combined with higher-than-expected inflation data on Wednesday should support market expectations that the Bank of Canada will raise rates later this year, ahead of the Fed, said BNY Mellon strategist Michael Woolfolk.

"The loonie is once again poised for a sustained rally against the greenback. Whether it does so will depend in part on crude oil prices as well as policy guidance by BOC officials, which until now have been notably dovish," he said.

(Editing by Wayne Cole)

We welcome comments that advance the story through relevant opinion, anecdotes, links and data. If you see a comment that you believe is irrelevant or inappropriate, you can flag it to our editors by using the report abuse links. Views expressed in the comments do not represent those of Reuters. For more information on our comment policy, see http://blogs.reuters.com/fulldisclosure/2010/09/27/toward-a-more-thoughtful-conversation-on-stories/
Comments (2)
breezinthru wrote:
I’m not yet convinced that the Greek situation is under control.

In any case, we can be dead sure that the European sovereign debt situation is not under control and trying to bring those debts which are very much larger than Greece’s debt under control will likely be too much for the Europeans.

Both the ability and the will to do so are doubtful.

Jun 30, 2011 8:38am EDT  --  Report as abuse
Econstudent wrote:
In addition, why is the ECB governing Board signalling a rate hike now?
Borrowing costs for indebted banks and their subsequent borrowers will become more onerous adding further strain.

Jun 30, 2011 5:30pm EDT  --  Report as abuse
This discussion is now closed. We welcome comments on our articles for a limited period after their publication.