FOREX-Euro soars on ECB, China data; yen slumps on easing forecast

Thu Jan 10, 2013 4:01pm EST

Related Topics

* Euro firms as ECB holds rates and offers no hints of
future cuts
    * Sterling gains after BoE leaves rates unchanged
    * BOJ easing expectations keep pressure on yen
    * Technicals show Aussie vs dollar breaking above strong
resistance


    By Julie Haviv
    NEW YORK, Jan 10 (Reuters) - The euro catapulted to an
18-month high against the yen and hit a one-week peak against
the dollar on Thursday after the European Central Bank gave no
indication it would cut rates, while robust Chinese export data
assuaged concerns about global growth.
    The single currency shared by 17 countries rose for the
first time in three sessions against the dollar as the ECB
unanimously left interest rates unchanged at 0.75 percent.
 
    Market participants had been wary that ECB President Mario
Draghi would signal rate cuts in the coming months, and when
that did not happen, the euro's gains accelerated. 
    "Mr. Draghi's normal tone of realism was replaced with a
certain aura of optimism and giddiness," said Neal Gilbert,
market strategist at GFT Forex, in Grand Rapids, Michigan. "He
smiled more, defended a potential recovery more, and overall
appeared to feel proud of the work he had done."
    Draghi said euro zone economic weakness was expected to
extend into 2013, but the region should gradually recover later
in the year..
    The euro was last up 1.4 percent at $1.3248 after hitting a
session peak of $1.3266, its highest since Jan. 2. The
euro has gained 0.4 percent since the start of the year.
    Investors also embraced the euro on raised hopes of a more
robust recovery for the global economy this year after China,
the world's second-largest economy, reported
stronger-than-expected exports. 
    "We look for a retest on the $1.33 high seen in mid-December
and again at the start of the year," said Marc Chandler, global
head of currency strategy at Brown Brothers Harriman in New
York.
    Against the yen, the euro rose to an 18-month high of 116.98
 yen and last traded up 1.9 percent at 116.94 yen. 
The euro is up an impressive 2.2 percent since the beginning of
the year. 
    The euro was also bolstered by solid demand at a sale of
mostly two-year Spanish debt, which caused Spain's benchmark
10-year bond yields to fall to a 10-month low.
  
    "At the moment, the biggest driver of the euro's value is
the spread between Spanish and German bonds and that is going
one-way - tighter," said Kit Juckes, foreign exchange strategist
at Societe Generale in London.
    "Euro/dollar looks set to test $1.33 overnight and a weekly
close above there, takes it on to $1.35," he said. "The
$1.20-$1.33 move in September/December took out all the shorts,
and introduced a few random longs.
    "A move up from here would need longs to get put on more
widely, but I would not rule that out," he said.
    Sterling rose against the dollar after the Bank of
England left interest rates and its quantitative easing target
unchanged. It was last 0.8 percent higher at $1.6154.
 
    The dollar rose for a second straight session against the
yen, edging close to a 2-1/2-year high, with the Japanese
currency susceptible to further losses on increasing bets of
aggressive easing policy by the Bank of Japan.
    The dollar was last up 0.4 percent on the day at 88.24 yen
, not far from 88.40 yen hit on Friday, which was its
highest since July 2010. The dollar has appreciated 1.7 percent
so far this year.
    Yen moves should remain volatile ahead of the BOJ's Jan.
21-22 policy meeting. 
    
    CHINA EXPORT DATA BUOYS GROWTH CURRENCIES     
    Data showed China's export growth rebounded sharply to a
seven-month high in December, a strong finish to the year after
seven straight quarters of slowdown, even as demand from Europe
and the United States remained subdued. (ID:nL5N0RM09N]
    China's strong export data knocked the low-yielding yen as
investors sought higher-yielding and growth-linked currencies
like the Australian dollar, which rose to a four-month high
versus the U.S. dollar and a 4-1/2 year high against the yen.
    It has so far been a banner year for the Australian dollar
and the New Zealand dollar, notching impressive gains of
1.9 and 2 percent, respectively.
    The Chinese report "has reinforced a bunch of recent
stronger data releases that has the market believing that China
is turning the corner and growth will start to increase there
again," said George Davis, chief technical analyst at RBC
Capital Markets in Toronto. 
    "This may be an interesting theme to watch over the next few
weeks in terms of whether or not the 'growth optimism' can be
maintained," he said.
    Davis said from a technical standpoint the Australian
dollar/U.S. dollar broke above a strong resistance trendline
that dates back to 2011 at 1.0531 on Thursday in response to the
Chinese data.
    "If we get above a double top at 1.0635, it would suggest to
me that the positive sentiment is set to continue," he said.
    The Aussie last traded at 1.0594, up 0.8 percent on
the day, according to Reuters data.
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