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FOREX-Euro inches up but vulnerable to euro zone anxiety
November 4, 2011 / 12:06 PM / 6 years ago

FOREX-Euro inches up but vulnerable to euro zone anxiety

* Euro supported by expectations Greek referendum cancelled
    * Position-taking limited ahead of U.S. payrolls data, G20
    * EURCHF buying helps single currency, traders cite SNB
rumours

    By William James	
    LONDON, Nov 4 (Reuters) - The euro rose on Friday as the
threat of a destabilising referendum in Greece looked to have
subsided, but stiff technical resistance and the risk of fresh
flare-ups in the euro zone's debt crisis kept a lid on gains. 	
    After a week of volatile trading many speculators were
reluctant to open big positions ahead of key U.S. jobs data at
1230 GMT and awaiting the conclusions of the Group of 20 leaders
summit taking place in Cannes. 	
    The euro was last 0.25 percent higher at $1.3854,
taking it back above the 55-day moving average of $1.3839 which
has capped the currency in recent sessions.	
    The options market continued to show increased worries about
the risk of further euro declines, with one-month risk reversals
 still trading not far from a record high in
favour of bets on euro falls versus the dollar. 	
    Traders cited semi-official buying of euro/dollar with
speculative accounts targeting stops above Thursday's peak
of$1.3855 up to around $1.3870.	
    The euro has bounced from a three-week low of $1.3608 on
Tuesday, struck after Greek Prime Minister George Papandreou's
sudden call for a referendum sparked concerns the country could
reject the bailout plans and instead default on its debt.	
    On Thursday Papandreou bowed to cabinet rebels and agreed to
make way for a national coalition government with the opposition
if his Socialists back him in a knife-edge confidence vote on
Friday. 	
    This move reassured investors and drove the euro higher,
raising hopes for political consensus in Greece on accepting the
EU rescue framework.        	
    "I would take the referendum to be cancelled, and whatever
happens in the confidence vote tonight the opposition will
support legislation for the bailout package. That has soothed
the market," said Adam Cole, global head of FX strategy at RBC
Capital Markets.	
    "Today we go back to more conventional trading off the
payrolls numbers. I suspect we will stay around $1.38 until
then, if you look at the forecasts for payrolls nobody wants to
go out on a limb."	
    Reuters consensus forecast is for U.S. non-farm payrolls to
show 95,000 jobs added, compared to 103,000 last month. 	
    Morgan Stanley held an above-consensus 125,000 forecast on
the jobs report, which, if realised could boost risk appetite.	
    "In the case of a better reading in the U.S. you might have
a bit of better risk appetite come, and this would mean further
selling in dollar/yen terms coming in," said Hans Redeker, head
of Global FX strategy at Morgan Stanley.	
    The dollar was broadly flat against the yen and was last
trading at 78.01 yen , but traders said there were strong
bids just below that level. Wariness about Japanese intervention
after Tokyo's record $100 billion intervention on Monday also
provided support.	
    On the technical front, the dollar has strong support at
77.43 yen, the site of both tenkan and kijun lines on the
Ichimoku chart.	
    	
    ECB RATE CUT	
    Gains in the euro against the Swiss franc helped the single
currency. The euro rose to a one-week high of 1.2248 francs
 with traders citing buying by Swiss corporates and
speculation the Swiss National Bank may raise its target rate in
euro/Swiss above 1.20 francs.	
    But analysts said the European Central Bank's unexpected
decision to cut interest rates to 1.25 percent on Thursday
eroded some of the support the euro has enjoyed throughout this
year on the back of favourable interest rate differentials.	
    This could exert further pressure on the euro as the
region's debt crisis rumbles on, they said. 	
    "We will now have interest rate differentials working
against the euro," said Redeker, highlighting the possibility
that rates may fall below the previous record low of 1 percent.	
    "(And) when the ECB realises that the peripheral debt
problem is not going to be solved via the EFSF, then it might
have to act as a lender of last resort... under those
circumstance the euro is going to come under selling pressure."	
    Italian and French yield spreads over safe haven German
Bunds remained in sight of their highest levels since the launch
of the euro, suggesting investors were still worried over the
possibility of contagion in the debt crisis.

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