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FOREX-Euro rises on German data, brushes aside S&P warning
December 6, 2011 / 11:36 AM / 6 years ago

FOREX-Euro rises on German data, brushes aside S&P warning

* Euro hits session high after German industry orders data

* S&P warning piles pressure on EU leaders to resolve crisis

* Swiss franc falls broadly after inflation data

By Anirban Nag

LONDON, Dec 6 (Reuters) - The euro moved higher on Tuesday buoyed by a surprise jump in German industrial orders and on expectations euro zone policymakers will stitch together a deal to save the currency bloc after Standard & Poor’s warned about a mass downgrade.

With most investors already running bearish positions on the euro, chances of a bounce were strong as many were looking to book profits.

The unprecedented warning to downgrade 15 countries including top-rated heavyweights such as Germany and France came as they announced an initiative, to be discussed at the Friday summit, to impose budget discipline across the euro zone through treaty changes.

Analysts say the credit warning has put EU leaders under additional pressure to produce quick results to stabilise markets and regain confidence. If core euro zone nations are downgraded, the European rescue fund will find it tough to attract investor interest in its bond offerings, they say.

The euro was up 0.1 percent on the day at $1.3417, recovering from a session low of $1.33333, with stops triggered on its move above $1.3405. It hit a session high of $1.34283 after German industrial orders for October posted their strongest rise since March 2010.

Traders expect offers between $1.3430-50 to cap gains.

Steve Barrow, head of G10 currency research at Standard Bank said he did not expect the countries to be downgraded by S&P and the EU summit was likely to see some sort of agreement.

“But there is a low tolerance level for investors to build positions especially with an ECB meeting coming up and then the year-end plays,” he said.

The euro received some support on Monday on growing expectations of an agreement at the EU summit this week, along with deficit-reduction steps by debt-laden countries like Italy. That is expected to pave the way for the ECB to move more aggressively to calm the turbulent euro zone bond market.

The bank has so far been reluctant to buy up bonds of heavily indebted states, concerned this would take the pressure off them to sort out their finances, but signalled it may change its stance, depending on what EU policymakers come up with.

Still, any bounce is likely to be limited to short-covering, and levels around $1.3550 should see gains capped. Traders said positioning is also likely to be light, heading into a ECB rate decision on Thursday.

“Most investors are anyways bearish on the euro,” said Sebastien Galy, FX strategist at Societe Generale. “Nevertheless, these are good levels for investors to initiate fresh short positions.”

The euro rose against the Swiss franc after data showed a growing risk of deflation in Switzerland and added to speculation the Swiss National Bank could intervene and raise the floor on the euro/Swiss franc pair from 1.20 francs.

The single currency hit a three week high of 1.2419 francs on trading platform EBS, while the dollar rose around 1 percent to a high of 0.92990.

ECB RATE CUT EYED

The ECB is widely expected to cut interest rates and throw more funding lifelines to stressed banks toiling against the euro zone’s debt crisis. Most banks are expecting the ECB to cut by 25 basis points, with less than a 10 percent chance of a 50 bps cut, a Reuters poll showed..

A deeper-than-expected cut could give the euro and other riskier currencies a brief lift, analysts said.

Riskier currencies as well as stocks were softer on Tuesday with overall risk sentiment hurt by the S&P threat.

The Australian dollar was under further pressure after the Reserve Bank of Australia cut rates by 25 basis points and left the door open for further easing. The Aussie fell to a low of $1.0156 down from a peak of $1.0305 hit overnight. Traders cited stops below $1.0150.

The dollar index was flat on the day at 78.51. Against the yen, the greenback was steady at 77.74 yen, and, as during the last couple of sessions, struggled to break above the 78.00 yen barrier.

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