FOREX-Euro slip as rally runs out of gas, Spain in focus

Mon Sep 24, 2012 2:15am EDT

Related Topics

* Euro slightly above last week's low vs dollar

* Rising expectation euro's rally has run its course

* Uncertainty on Spain, Greece hindering euro

* Yen helped by repatriation ahead of Sept 30

* Aussie, kiwi fall as precious metal, Asian shares fall

By Hideyuki Sano

TOKYO, Sept 24 (Reuters) - The euro tested last week's low against the dollar on Monday, while the growth-linked Aussie slid as its rally sparked by recent central bank stimulus moves ran out of steam.

Uncertainty over Spain and Greece also hampered the euro while the yen was helped by Japanese repatriation ahead of half-year book-closing at the end of this month, though wariness about Japan's possible intervention kept its advance in check.

The euro fell 0.2 percent to $1.2950. Earlier Monday, it was as low as $1.2928, within striking distance of Thursday's trough of $1.29195. The single currency has weakened 1.7 percent from a four-month peak of $1.3173 reached on Sept. 17.

An initial support is seen at $1.2905, the 23.6 percent retracement of the July to September rally, followed by its 200-day moving average, which comes in around $1.2828.

Traders say a rally in the euro since late July, mainly driven by hopes of an economic boost from the European Central Bank's bond buying plan and the U.S. Federal Reserve's additional easing, may have had run its course.

Data on Friday from U.S. derivatives watchdog CFTC showed that speculators' net euro short positions shrank to their lowest level since November, having fallen to just above one-third of the record peak, reached in June.

"I think the euro's rally has come to an end. Speculators will now be able to build fresh short positions from here rather than going long in the euro," said Teppei Ino, currency analyst at the Bank of Tokyo-Mitsubishi UFJ.

Also casting a shadow on the euro was uncertainty over when Spain will seek external aid, a condition for the European Central Bank to start buying Spanish debt.

Later this week, Madrid is expected to present its draft budget plan for 2013 and new structural reforms as well as the results of stress tests on its wobbly banking sector. These could set the stage for a full-scale bailout.

But Economy Minister Luis de Guindos said on Saturday Spain will not rush to seek external aid to finance its debt, and EU officials said they did not expect Prime Minister Mariano Rajoy to seek an assistance programme before a regional election in his native Galicia on Oct. 21.

Adding pressure for Spain to seek aid is a credit review by ratings agency Moody's expected this week, as well as a 27.5 billion euro refinancing hump at the end of next month.

Moody's could downgrade Spanish debt to junk status, although the agency has said it would welcome a Spanish aid request.

"What makes today's markets difficult is that a downgrade could actually prompt Spain to seek aid, which would be positive for the euro," said Katsunori Kitakura, associate general manager of market making at Sumitomo Mitsui Trust Bank.

On the other hand, Greece is still yet to secure a deal on an austerity package w ith its international lenders, who left Athens this weekend before they resume talks in a week.

An EU-IMF report into whether Greece's debt is manageable, originally expected next month, now looks set to be delayed until after Nov. 6 because policymakers want to avoid any shock to the global economy before the U.S. election, EU officials and diplomats said.

INTERVENTION SCARES

Against the yen, the euro slipped to as low as 100.87 yen , its lowest level in 10 days and 0.6 percent below last week's closing levels.

The dollar also dipped 0.2 percent to 78.03 yen, with traders citing Japanese repatriation as supporting the yen.

Yet the dollar has support at 78.00 yen as traders are wary Japan might intervene in the market should the yen gain further, with last week's easing by the Bank of Japan perceived as paving the way for such a move.

In recent years, Tokyo's intervention came after, or at the same time as BOJ's easing steps.

The Australian dollar fell 0.4 percent to $1.0413, nearer to the bottom of last week's low of $1.0367 than the six-month high of $1.0625 set on Sept 14.

"The short term outlook for the Aussie dollar is somewhat messy. U.S. QE3, foreign central bank buying and prospects for improved global growth and higher commodity prices into next year are positive," said Shane Oliver, head of investment strategy at AMP Capital.

"But against this, uncertainties regarding China, soft bulk commodity prices and the likelihood of RBA (Reserve Bank of Australia) rate cuts are negatives," he said.

The Aussie fell as both spot gold and silver dropped and Shanghai shares touched a fresh 3 1/2-year low.

The New Zealand dollar was also battered, falling 0.7 percent to $0.8236.

With no major economic reports out of Asia on Monday, investors are looking to the latest reading of an influential barometer of economic health in Germany, the Ifo business climate index.

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