FOREX-Euro heads for second week of gains on Greece hope

Fri Nov 23, 2012 2:09pm EST

Related Topics

* Greece's lenders near agreement to release further aid
    * Euro hits 3-week high vs dollar, 7-month high vs yen
    * Yen comes off more than 7-month lows vs dollar


    By Wanfeng Zhou
    NEW YORK, Nov 23 (Reuters) - The euro rallied to a
three-week high against the dollar on Friday, heading for its
second straight week of gains, on hopes that Greece's lenders
were nearing an agreement to release further aid to help the
debt-stricken country.
    A rise in German business morale also boosted the euro,
although analysts said any euro strength should be limited given
the bleak economic outlook for the euro zone as a whole and
expectations that the European Central Bank will have to ease
policy further.
    Greece said the International Monetary Fund had relaxed its
debt-cutting target for the country, suggesting lenders were
closer to a deal for a vital aid tranche to be disbursed. But
other sources involved in the talks cautioned the funding gap
was far bigger than Greece has suggested. 
    "While we wouldn't want to understate the challenges of
reaching agreement on Greece, news reports have described some
of the remaining obstacles as technical and legal, and thus the
hurdles to a deal do not seem insurmountable," said Nick
Bennenbroek, head of currency strategy at Wells Fargo in New
York.
    The euro rose as high as $1.2991 on Reuters data,
breaking above resistance at $1.2910, its 55-day moving average.
It was last trading at $1.2971, up 0.7 percent on the day. For
the week, the euro gained 1.8 percent, the best weekly
performance since mid-September.
    The euro also hit a seven-month high of 106.97 yen 
and was last at 106.92 yen, up 0.6 percent.
    Euro zone finance ministers, the IMF and ECB failed earlier
this week to agree on how to get Greek debt down to a manageable
level and will have a third go at resolving the issue on Monday.
    Euro zone finance ministers will also hold a teleconference
on Saturday to prepare for Monday's meeting, officials said. 
    The euro has gained 2 percent against the dollar in the past
two weeks as yields on Greek bonds fell on expectations that
euro zone ministers should be able to sign off on another
tranche of aid for Greece on Monday. 
    German business morale surprised with its first rise in
seven months in November. The Munich-based Ifo think tank said
its business climate index rose to 101.4 from 100.0 in October,
far surpassing even the highest estimate in a Reuters poll.
 
    "The IFO was a bit of surprise, but these are levels which
we saw back in October and not really a turn in sentiment,"
Stuart Frost, fund manager at RWC Partners. "We expect the
euro's gains to fizzle out."
    
    YEN CARRY TRADES?
    The dollar was little changed at 82.43 yen, pulling
away from Thursday's high of 82.82 yen, its strongest level
since early April. On the week, the dollar rose 1.2 percent.
    The dollar has climbed nearly 4 percent against the yen in
the last two weeks, with the yen weakened by expectations that a
likely new Japanese government after an election scheduled for
December would push the Bank of Japan to implement more drastic
monetary stimulus.
    Shinzo Abe, the leader of Japan's opposition Liberal
Democratic Party, which is tipped to win the election, has
called for measures such as having the BOJ buy bonds issued
specifically to fund public works projects and pushing
short-term interest rates below zero.
    His party's policy platform calls for a 2 percent inflation
target, and seeks to ensure that the BOJ will pursue it
vigorously with a possible revision to legislation that
guarantees the central bank's independence. 
    In an interview with the Wall Street Journal published on
Friday, Abe was also quoted as saying that he would consider
postponing sales tax increases agreed in August if the economy
remained mired in deflation.
    Analysts said loose monetary measures along with lax fiscal
policies could keep the yen under pressure and could see
yen-funded carry trades return. Under these trades, investors
sell the low-interest rate yen to buy higher-yielding assets.
    "Speculation is already growing that the yen will be the
funding currency of choice for 2013 carry trades - a view we
tend to support," Chris Turner, head of FX strategy at ING, said
in a note.
    A broad rally in risky assets such as stocks weighed down
the safe-haven U.S. dollar. The dollar index slipped 0.9 percent
to 80.226, after hitting a three-week low.
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