FOREX-Euro edges higher on German data, but gains seen short-lived

Tue May 7, 2013 12:06pm 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
    * Yen gains vs dollar and euro

    By Gertrude Chavez-Dreyfuss
    NEW YORK, May 7 (Reuters) - The euro firmed against most
currencies on Tuesday after German industrial orders data were
stronger than expected, but expectations the European Central
Bank might ease monetary policy further could limit its gains.
    The Reserve Bank of Australia, meanwhile, surprised 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 after the
German economic data and by midday was up 0.1 percent at
$1.3085. 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 euro also rose against the Swiss franc and
sterling.
    "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 ECB 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 the 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 yen, on the other hand, rose against the dollar and
euro, as some of the riskier assets such as commodities and
equities came off their highs. Analysts said there were concerns
about political tensions surrounding Iran and Syria, prompting
investors to seek the yen's safety.
    The yen is viewed as a safe haven because it is a
highly-liquid currency. In times of crises, Japanese investors
tend to bring home their savings supposedly invested in overseas
assets.
    "Markets in general are getting jittery about the high
levels in stocks such that any speculation or headlines about
Iran or Syria tends to get more attention than normal," said
Greg Moore, currency strategist, at TD Securities in Toronto.
    The dollar fell 0.3 percent against the Japanese currency
 at 99.07 yen, while the euro was down 0.3 percent at
129.66 yen.  
    
    AUSSIE HURT
    The Australian dollar hit a two-month trough of US$1.0152
after the central bank cut 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$1.0164, down 0.8 percent on the day. 
    RBA Governor Glenn Stevens made particular mention of the
exchange rate, stating 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."
FILED UNDER:
A couple walks along the rough surf during sunset at Oahu's North Shore, December 26, 2013. REUTERS/Kevin Lamarque

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