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FOREX-Euro steadies, yen weighed as risk aversion eases
October 12, 2012 / 5:50 AM / 5 years ago

FOREX-Euro steadies, yen weighed as risk aversion eases

* Yen capped after US jobs data, Softbank news also weighs

* Aussie, risk currencies underpinned as Asia shares edge up

* Euro steady as Spain’s move, ECB bond-buy timing awaited

By Chikako Mogi

TOKYO, Oct 12 (Reuters) - The euro steadied on Friday after snapping a three-day decline the day before when the International Monetary Fund said indebted euro zone economies should have more time to cut budget deficits, while the yen was capped as risk aversion eased.

Markets are stuck in ranges as investors continue to wait for Spain, the euro zone’s fourth-largest economy gasping under the weight of huge public deficit, to request a bailout and activate the European Central Bank’s new scheme aimed at easing the refinancing pains of highly-indebted euro zone countries.

“Everyone is still waiting on Spain to request aid and for the ECB to eventually start buying bonds. Until that really happens it’s hard to see (currencies) break decisively out of current ranges,” said Gareth Berry, G10 FX strategist for UBS in Singapore, noting that much of the price action was merely consolidation in current ranges.

IMF Managing Director Christine Lagarde reiterated on Friday that more time is necessary for Greece. On Thursday, she said she favoured giving Greece and Spain more time to reduce their budget deficits because cutting too deeply, too fast would do more harm than good.

The euro steadied around $1.2928, after hitting a high of $1.29465 earlier, near Thursday’s peak of $1.2952. The single currency has stayed above key technical support at its 200-day moving average.

Lagarde’s comments reaffirmed that the IMF “had to soften its stance as cutting Greece off the euro zone isn’t viable,” said Mitsuru Yaguchi, senior manager at Bank of Tokyo-Mitsubishi UFJ’s economic research department.

“At the same time, it is quite unclear whether giving more time for Greece would bear fruit, and that’s why markets are drifting without a clear direction,” he said.

Yaguchi said the next focus is “whether euro zone member countries will also acknowledge that more time should be spent for Greece, as well as who will provide additional aid for Greece and how that will be done including the issue of haircuts.”

Traders said other potential catalysts to move markets either way include the result of review by Moody’s Investors Service on its Spanish credit rating, expected by the end of the month, with markets seeing the risk of a cut to a junk status.

European Union leaders are due to meet on Oct. 18-19.

YEN STRENGTH LOSES STEAM

As currency market participants kept their eyes on equities, a slight gain of 0.3 percent in Asian stocks outside Japan suggested easing risk-aversion and underpinned growth and risk sensitive currencies such as the Australian dollar higher.

The Aussie was steady against the yen at 80.40, after rising to a high of 80.74 earlier. The euro also stood nearly flat at at 101.28 yen off an earlier high of 101.59.

The Aussie earlier came just a touch below its highest since Oct. 2 of $1.0294 seen on Thursday.

The stability in the euro and riskier currencies capped the dollar index, which is measured against a basket of six key currencies.

Against the yen, the dollar was buoyed by a number of factors, rising to a high of 78.54 yen. On Thursday, it hit 77.94 yen, its lowest against the Japanese currency since Oct. 1.

Data showing a sharp decline in initial U.S. jobless claims last week, to the lowest level in more than four and a half years, and news that Japanese wireless service provider Softbank Corp may buy a majority stake in Sprint Nextel, in a deal that could be worth at least 1 trillion yen ($12.74 billion helped support the dollar against the yen, traders said.

“The mood towards the yen switched completely overnight, after the initial claims and Softbank news, which at least is not a yen-buying factor,” said Hiroshi Maeba, head of FX trading Japan for UBS in Tokyo. He added that the potential Softbank deal was so large that currency markets could be tapped for part of the financing.

He expected the dollar/yen to trade near 78.50 within a broader range of 78.30-78.60, with support around 78.25 yen and the base of the daily Ichimoku cloud around 78.70 serving as resistance.

Traders also noted wariness about Japan’s resolve to prevent the yen’s appreciation, with Japanese Economics Minister Seiji Maehara saying he will discuss the pain a strong yen is inflicting on Japanese exports when he meets U.S. Federal Reserve Chairman Ben Bernanke and ECB President Mario Draghi later on Friday.

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