November 14, 2011 / 11:51 AM / 6 years ago

FOREX-Euro falls as Italy optimism proves short-lived

* Euro falls, investors look to sell into euro/dollar
rallies
    * Debt woes tame optimism over new Italy, Greece govts
    * Dlr/yen edges to lowest since Oct. 31 intervention

    By William James	
    LONDON, Nov 14 (Reuters) - The euro fell against the
dollar on Monday as initial optimism about prospects of
crisis-fighting reforms under new governments in Italy and
Greece gave way to caution over the huge debt problems still
plaguing the single currency zone.	
    On Sunday, Italy's president appointed former European
Commissioner Mario Monti to head a new government charged with
implementing urgent reforms to end a crisis that has endangered
the whole euro zone.  	
    On Monday Italy sold 3 billion euros of five-year bonds at
yields that, while down from last week's record market highs,
were elevated enough to underscore the challenges the country's
new technocratic government faces to restore market confidence,
leaving many investors bearish on the single currency.
 	
    After a modest rally in Asian trading, the common currency
last stood at $1.3665, down 0.6 percent on the day having
been briefly boosted by some relief following the debt auction.	
    "When you have good news and the euro doesn't rally, you're
probably going to be headed lower over the week... I'd say
you're selling into rallies from $1.3750," said Geoff Kendrick,
currency strategist at Nomura in London.	
    Earlier the currency rose as high as $1.3811, with near-term
resistance near its two-week high of around $1.3870 and offers
from Asian sovereign investors cited above that. Traders cited
sizeable options expiries at $1.3750. 	
    After Italy's 10-year bond yield soared to
levels seen as unsustainable above 7 percent last week, markets
remained nervous over the consequences of more pressure on the
euro zone's largest government bond market. 	
    Some traders said that for the euro to post more gains, it
would have to break past decent resistance at around $1.3870.	
    "The fact that we have these technocratic governments in
place is a positive, in that they'll press toward the sort of
austerity measures required," said Simon Derrick, head of
currency research at Bank of New York Mellon. 	
    "After a bit of consolidation we'll have the euro testing
back up, and we'll be having a look at $1.3850 again in the
not-too-distant future."	
    In Greece, new Prime Minister Lucas Papademos begins the
tough task of rebuilding Greece's credibility with financial
markets by pushing through the tough austerity measures the
country needs to stave off bankruptcy. 	
    	
    YEN STRENGTHENING	
    The euro was also lower against the yen, trading at 105.12
yen. The dollar eased against the yen to 76.811
, its lowest since Japan's Oct. 31 intervention.	
    "People are gradually realising that another round of
intervention isn't going to come... and so bids look like
they're gradually being shifted lower (in dollar/yen)," Nomura's
Kendrick said. 	
    Appearing to support Japan's recent currency intervention
aimed at curbing excess volatility, the head of the
International Monetary Fund said on Saturday the move was in
line with the spirit of the G7 and G20. 	
    Traders said interventions, particularly unilateral actions
such as Japan's, are unlikely to have a long-term impact and the
dollar may slip on any signs of problems in the U.S. economy.	
    The dollar index stood at 77.305, well off last
week's high of 78.165. The Australian dollar fell to
$1.0233 from a session high of $1.0351.

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