FOREX-Euro rises after above-forecast euro zone PMI data

Tue Feb 5, 2013 5:15am EST

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* Euro lifted by above-forecast euro zone services PMI
    * Still vulnerable to Spain, Italy worries
    * But euro uptrend seen intact, traders look to buy on dips

    By Jessica Mortimer
    LONDON, Feb 5 (Reuters) - The euro rose on Tuesday, helped
by better-than-expected euro zone data, though it was vulnerable
to renewed worries about political uncertainty in Spain and
Italy.
    Euro zone data on Tuesday showed the services sector
improving more than expected in January. The purchasing
managers' index for services in Germany posted its biggest
one-month rise since August 2009 while in Spain it contracted at
its slowest pace since June 2011. 
 
    That helped the euro rise 0.1 percent to $1.3522. It had
earlier hit a low of $1.3458 as political uncertainty in Spain,
where the prime minister is facing calls to resign, and in
Italy, which holds a general election later this month, prompted
investors to take profits on recent strong gains.
 
    Analysts also said the euro could succumb to more selling
before a European Central Bank meeting on Thursday.
    But they were wary of saying the euro's falls on Monday,
when it lost nearly 1 percent against the dollar, marked a
reversal of the trend seen in recent weeks under which the
currency has benefited from ebbing worries about the euro zone.
The euro hit a 14-month high of $1.3711 last week.   
    "There is a correction (in the euro) on bad news out of
Italy and Spain but it's also due to positioning ... The euro
had become technically overbought," said Arne Lohmann Rasmussen,
head of FX research at Danske Bank in Copenhagen.
    "The underlying trend is still there, there is still a
recovery (in the euro zone)," he said, adding that Danske Bank
were advising clients to look at establishing new long euro
positions against the dollar and other currencies. 
    He said the euro could drop further on any downbeat comments
from ECB President Mario Draghi on Thursday, however. 
    Traders said the euro might extend falls if it breaks below
reported stop loss orders around $1.3450 and $1.3415. Chart
support was seen at $1.3414, a low hit on January 29, and at the
21-day moving average at $1.3376.
    "Some euro zone countries, such as Spain, are still
perceived to be fragile and this shows that their vulnerability
could come to surface from time to time," said Katsunori
Kitakura, associate general manager of market making at Sumitomo
Mitsui Trust Bank in Tokyo, referring to Monday's sell-off.
    Potential political upheavals in Italy and Sain are not
likely to derail the euro zone's efforts to fix its debt
problems, however, traders and analysts said.
    "The uptrend is still in place. People are looking
tentatively to get long again ... There is a general 'buy dips'
mentality," a London-based trader said.
    
    YEN EDGES LOWER
    The euro also turned higher against the low-yielding yen,
which was expected to remain weak on expectations of aggressive
monetary easing in Japan.
    The euro gained 0.5 percent to 125.51 yen,
although it was still below a 34-month high of 126.97 hit last
Friday.
    The dollar also rose 0.4 percent to 92.77 yen, edging
back towards a 33-month peak of 93.185 yen hit on Monday.
    Some traders believe the currency pair is repeating its
trading pattern of recent weeks, where it falls early in the
week and recovers in the latter half.
    The higher-yielding Australian dollar 
underperformed, however. It was down 0.2 percent at $1.0413
after the Reserve Bank of Australia held interest rates but left
the door open to more cuts in the months to come.
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