FOREX-Euro gains prove short-lived before ECB meeting
* Upward revision to PMI data lifts euro vs dollar * Investors still wary of ECB, Italian political situation * Yen strengthens after BOJ confirmation hearings By Anooja Debnath LONDON, March 5 (Reuters) - Slightly better-than-expected euro zone data helped the euro firm against the dollar on Tuesday but it had pared some early gains by midday as investors weighed the chances the ECB will cut interest rates this week. Euro weakness is seen persisting as the currency bloc's economy continues to falter, raising the risk the European Central Bank will ease policy in coming months. The euro was up 0.1 percent at $1.3035, giving up some gains made earlier, with reported selling by macro hedge funds. It had hit a session high of $1.30755 after a euro zone composite PMI survey came in at 47.9, marginally better than the preliminary reading of 47.3. The index remained well below the 50 mark dividing growth from contraction, however, and dipped from the previous month. Euro zone retail sales data also beat expectations and provided a slight boost to the single currency. "The (PMI) data did not have a lasting effect on the euro, because what counts in the end is what the ECB makes of these numbers as it determines their growth outlook and how likely a rate cut will be," said Ulrich Leuchtmann, head of FX research at Commerzbank. "If we don't get a massively positive number that makes the ECB rethink their forecasts then everything that comes out now isn't of much importance." The euro has been unable to make decisive rebounds as sellers emerged at higher levels, and option expiries at $1.3025 and $1.3050 could keep the currency pinned around these levels. Technical charts showed resistance at the 100-day moving average at $1.31276. "Even if the ECB does not surprise already dovish expectations, we still have the risk of further deterioration in data bringing forward bets of further cuts as soon as April." said Valentin Marinov, head of European G10 FX strategy at Citi. The euro has also been hurt by political concerns in Italy. Last week's election left no group with a working majority in parliament and that meant Italy could be inching closer towards another election within months. Marinov said investor uncertainty about Italy could escalate if there is no government in place before the end of the month, adding he expected the euro to target $1.28. YEN RISES The yen rose against the dollar and euro after confirmation hearings of the government's nominees for two Bank of Japan deputy governor posts, which had been widely expected by the market. The Japanese government has signalled it wants the BOJ to pursue aggressive monetary easing to stimulate the economy, a stance that has weighed heavily on the yen since November. The dollar fell 0.4 percent to 93.09 yen, pulling away from a high of 94.77 yen struck on Feb. 25, which was the dollar's highest level against the yen since May 2010. The euro dipped 0.3 percent to 121.37 yen. Analysts said the dollar's drop against the yen was mostly a reflection of market positioning as traders were probably long dollar/yen going into Tuesday's confirmation hearings. Markets are now waiting for some actual policy action after such aggressive easing rhetoric for the dollar to make significant gains, they said. Some strategists however said that the dollar's ascent against the yen was intact and dips would provide a good chance to buy the pair. "Overall, we continue to view near-term pull-backs into the 91.80 yen area as providing buying opportunities," analysts at Morgan Stanley said in a note.
- Tweet this
- Share this
- Digg this