FOREX-Euro rises, but debt worries could limit gains

Thu Apr 12, 2012 4:10pm EDT

Related Topics

* Euro rises to one-week high vs dollar
    * Italy bond yields dip but debt auction weak
    * U.S. jobless claims data cast labor market cloud
    * Chinese lending data boost growth hopes

    By Luciana Lopez	
    NEW YORK, April 12 (Reuters) - The euro rose against the
dollar and the yen on Thursday as lower Italian bond yields and
Chinese lending data buoyed investor optimism even as the
still-unresolved euro zone debt crisis clouded long-term views.	
    Italian debt rallied for a second day after a sale produced
mixed results, with some investors having anticipated a weaker
auction. 	
    "The fact the yields have come lower is a very important
reflection overall," said Camilla Sutton, chief currency
strategist at Scotia Capital. While the auction results could
have been better, if they had disappointed further investors
would have demanded a higher return for Italian debt, she added.	
    But Sutton cautioned that the euro zone still faces
significant headwinds, particularly around growth.	
    The euro touched a one-week high against the greenback,
tracking a second straight session of gains against both the
dollar and the yen.	
    The single currency also got a boost as data from the
Asia-Pacific region encouraged hopes for global economic growth.	
    Chinese bank lending spiked in March, a sign of fresh
traction in Beijing's bid to boost credit creation to support
the cooling economy. China is the world's second-biggest economy
and a major engine of global growth. 	
    In addition, Australian employment surged past expectations
in March while the jobless rate stayed low. 	
    "There's a small rethink in the market that maybe
Asia-Pacific is not as bad as the market thought, that the
slowdown there is very temperate," said Boris Schlossberg,
director of currency research at GFT Forex in Jersey City.	
    "If Asia-Pacific still continues to expand at a respectable
rate, that provides enough support for the risk trade to push
the euro back up."	
    The euro rose to a one-week high of $1.3212 against
the dollar, bumping up against the 14-day simple moving average,
according to Reuters data. The single currency more recently
traded at $1.3188, up 0.60 percent on the day. 	
    Traders said it extended gains after stop-loss buy orders
were triggered on the break of $1.3155-60, forcing players to
cut short positions in the common currency.	
    Uncertainty about the euro has fallen as reflected in the
options market, with three-month risk reversals in the
euro/dollar still biased for euro puts, trading at -2.15 vols
 on Thursday, improving from -3.5 vols in
mid-February.    	
      	
    The single currency also gained against the yen, last
trading at 106.57 yen, up 0.52 percent. 	
    "The market is quietly putting the mini-crisis in the  
rear-view mirror ... People are looking at putting risk back on
in higher-yielding currencies," said Kit Juckes, currency
strategist at Societe Generale.	
    However, analysts said the euro's rise was partly the result
of volumes remaining thin just after the Easter holiday. They
still expect it to drop as concerns remain that the crisis could
spread to much bigger economies like Spain or Italy.	
        	
    JOBS DATA WEIGHS ON DOLLAR	
    Demand for the dollar was dampened after U.S. data showed
new claims for unemployment benefits rose last week to the
highest level since January, raising concerns
that the labor market was stalling.	
    The data added to speculation that the Federal Reserve may
opt to embark on a third round of asset purchases, called
quantitative easing. That would weigh on the dollar as it is
tantamount to printing money.	
    "The weaker-than-expected jobless claims numbers reinforce
the negative nonfarm payroll number from last month," said
Joseph Trevisani, chief market strategist at Worldwide Markets
Woodcliff Lake, New Jersey. 	
    "This will keep the dollar on the defensive as it brings up
another stimulus response from the U.S. Federal Reserve."	
    The dollar last traded down 0.06 percent against the yen at
80.81 yen, retreating from a high of 81.13 reached in the
overnight session.
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