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FOREX-Euro falls on report of challenge to ECB plan
September 25, 2012 / 8:36 AM / 5 years ago

FOREX-Euro falls on report of challenge to ECB plan

* Bundesbank checking legality of ECB bond-buying- report

* Euro hits one-week low, may target 200-DMA at $1.2827

* Spain, Greece worries weigh on euro

By Jessica Mortimer

LONDON, Sept 25 (Reuters) - The euro fell on Tuesday on a media report that Bundesbank lawyers were checking the legality of the European Central Bank bond-buying plan.

The euro was down 0.1 percent at $1.2920, having earlier dropped to $1.2886 on EBS trading platform. Further losses could see it target the 200-day moving average at $1.2827.

German tabloid Bild said the issue of whether the ECB’s plans to buy the bonds of indebted countries violates the ban in EU treaties on direct financing of state deficits could be referred to the European Court of Justice.

Although some analysts doubted any such legal challenge would go ahead they said it highlighted the lack of unity among euro zone policymakers.

“This is nothing of the magnitude of the German Constitutional Court decision. But when the euro zone’s most significant central bank is being sceptical it doesn’t encourage international investors to be holders of euros,” said Jeremy Stretch, head of currency strategy at CIBC.

The euro was also weighed down by Spain dragging its feet over requesting an international bailout. This must happen in order for the ECB to begin buying its bonds and, until it does, analysts say the euro is likely to weaken.

Last week, it hit a 4 1/2-month peak of $1.31729 on optimism as a result of the ECB plan and after the U.S. Federal Reserve announced aggressive quantitative easing.

“In the very short term the 200-day moving average is the obvious trigger point. If that gives way it could fall to $1.2760/70 and then we would be back to the pre-ECB rally levels,” CIBC’s Stretch said.

The euro was down 0.3 percent at 100.31 yen, having earlier dropped to 100.24 yen, its lowest since Sept. 13.

GREECE STILL A CONCERN

Worries about the size of Greece’s deficit also weighed on the euro, with German’s Der Spiegel reporting it could be 20 billion euros, nearly double previous estimates.

“Fears about Europe’s situation remain among investors, with the focus mostly on Spain, but Greece is also still a concern,” said Kimihiko Tomita, head of foreign exchange for State Street Global Markets in Tokyo.

This week, Spain is expected to unveil new structural reforms and its draft budget plan for 2013, with investors also awaiting results of stress tests on its banking sector. A Moody’s credit rating review of Spain is also expected, when it could downgrade Spanish debt to junk status.

Meanwhile, concerns remained about economic fragility in Europe’s stronger states. A weaker-than-forecast German business survey on Monday was followed on Tuesday by a survey showing French business morale stayed low in September.

Elsewhere, the dollar was down 0.1 percent at 77.77 yen , moving back towards the Sept. 14 low of 77.46 yen, with chart support said to lie in the 77.60 to 77.70 yen range.

It hit a one-month high of 79.22 yen on Sept. 19 after the Bank of Japan announced further monetary easing.

Japanese Finance Minister Jun Azumi told reporters he stood ready to take firm measures on currencies as long as he was finance minister. He said there would be no vacuum in currency policy due to his pending departure to take a new position in the ruling Democratic Party.

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