FOREX-Euro recovers after German data, but gains seen limited

Tue May 7, 2013 9:44am EDT

Related Topics

* German industrial orders data pushes euro higher
    * Gains seen temporary as ECB ready to lower rates
    * Australian dollar drops after RBA cuts cash rate

    By Gertrude Chavez-Dreyfuss
    NEW YORK, May 7 (Reuters) - The euro firmed across the board
on Tuesday after data showing German industrial orders beat
forecasts but expectations the European Central Bank could ease
monetary policy further could limit its gains.
    The Reserve Bank of Australia, meanwhile, stunned the market
earlier in the global session by cutting interest rates to a
record low, undermining the Australian dollar, which fell to its
weakest level in two months versus the U.S. currency. 
    The euro hit a session high of $1.3131 in the wake of
the German economic data and by early morning trading was up 0.3
percent at $1.3108. Industrial orders for March rose 2.2 percent
from February, beating a forecast of a 0.5 percent drop and
providing some relief to the single currency. 
    "The data offered a hopeful sign for recovery, which lent
mild support to the euro," said Joe Manimbo, senior market
analyst at Western Union Business Solutions in Washington.
     "Still, the general outlook for the region is decidedly
less auspicious, particularly after ECB President (Mario) Draghi
on Monday again stated that bank officials were on data watch
and persistent weakness in the core would offer scope for
another rate cut." 
    But Camilla Sutton, chief currency strategist at Scotiabank
in Toronto, believes the euro is better supported than the
dollar in the near term because the European Central Bank is not
engaged in the type of aggressive monetary stimulus the Federal
Reserve has undertaken.
    "The truth is relative monetary policy still favors the ECB
in terms of currency strength," Sutton said. "As long as ECB is
not engaged in any balance sheet expansion, that's
currency-positive and even if there's a risk of lower rates, the
interest rate differential between the euro and the dollar is so
close, it's not even material."
    She thinks the euro could hold that $1.30 level over the
next few weeks. 
    In the options market, one-month implied volatilities
 were near their lowest since January, indicating the
euro was likely to stay in a range against the dollar. The euro
has been trading between $1.2740 and $1.3243 since March.
    Support for the euro is seen around $1.3024, the 76.4
percent retracement of its April 24-May 1 rally, and the 55-day
moving average at $1.3021. Traders also cited bids from Asian
sovereign accounts at sub-$1.3050 levels.
    The euro regained ground against the yen, up 0.2
percent at 130.05 yen but still some way off a three-year high
of 131.13 set last month. The dollar was flat against the
Japanese currency at 99.20 yen, with traders citing 
interest from some hedge funds to buy the greenback.  
    
    AUSSIE HURT
    The Australian dollar hit a two-month trough of US$1.0152
after the central bank slashed rates to a record low of 2.75
percent. The market had been divided on the chances of a cut,
but prospects of further loosening could weigh on the currency. 
    The growth-linked Aussie dollar was last at
US$1.0162, down 0.9 percent on the day. 
    RBA Governor Glenn Stevens made particular mention of the
exchange rate, stating that the Aussie dollar, "has been little
changed at a historically high level over the past 18 months,
which is unusual given the decline in export prices and interest
rates during that time."
    Boris Schlossberg, managing director of FX Strategy at BK
Asset Management in New York said Stevens' remarks were a "clear
signal by the central bank that it would like to see the
(AUD/USD) pair trade lower - at least below parity - in order to
rebalance the economy and stimulate the export sector."
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