August 17, 2011 / 3:29 AM / 8 years ago

FOREX-Common bond setback saps euro; Swiss meeting eyed

* Euro falls after failing to break resistance

* Franco-German talks fails to push common bond forward

* Weak German GDP also hurts euro

* Swiss franc pressured on speculation of SNB action

* Swiss govt meeting to discuss strong franc Wednesday

By Antoni Slodkowski

TOKYO, Aug 17 (Reuters) - The euro sank under the top of its daily Ichimoku cloud on Wednesday, hurt by lack of progress in talks over a common euro zone bond and weaker-than-expected German GDP, while the Swiss franc stayed under pressure on expectations of imminent action to curb its strength.

The European currency fell 0.2 percent after it failed to test a major resistance area at 1.4470-80, but support was found above its Tuesday’s intraday low around $1.4355 and its 100-day moving average.

“It’s hard to sell the euro further, because the dollar itself is in a pretty dire state, especially after the EU took some significant long-term steps even if they were disappointing in the short-term,” said Minori Uchida, a senior analyst at Bank of Tokyo-Mitsubishi UFJ.

France and Germany unveiled far-reaching plans on Tuesday for closer euro zone integration and said joint euro bonds may be a longer-term option, leaving the euro vulnerable to more attacks from traders.

Many experts believe the only way to ensure affordable financing for the bloc’s most financially distressed countries would be for the euro area to issue joint euro bonds.

But the single currency’s resilience surprised some, particularly in the face of data showing growth in the euro zone’s biggest economy had virtually screeched to a halt in the second quarter.

The euro last traded down 0.2 percent at $1.4376.


Switzerland’s government is meeting later on Wednesday to discuss the franc and some have speculated new measures could come immediately, but others think the nation’s central bank may not cave in to pressure to start selling francs for euros just yet.

“The expectation is that they would do something about the Swiss franc. That is potentially going to be big news for markets,” said Joseph Capurso, currency strategist at Commonwealth Bank in Sydney.

The euro fell 0.5 percent to 1.14058 francs after scaling a two-week peak near 1.1484, while the dollar traded at 0.7928 francs , not far off a two-week high around 0.7997 set on Monday and way off the record low hit last week at 0.7067.

BNP Paribas analysts said they were sceptical of a euro-franc peg. “We think the threat (and potential implementation) of capital controls to reverse some of the recent real money flows/deter fresh inflows is a more likely scenario,” they wrote in a note.

Tokyo traders, however, were nervously awaiting the SNB’s decision, saying that lack of action can promt renewed buying in the franc and the yen, which is close to its all-time high af 76.25 yen versus the greenback.

They added the dollar may be further pressured as exporters look for opportunities to sell more actively and see limited likelihood of a dollar recovery given the lack of yen-selling intervention by the Bank of Japan over the past two weeks.

All these factors nudged the yen 0.2 percent higher to trade at 76.67 yen.

The relative calm in the currency market was also reflected in other asset markets as some semblance of normality returned after last week’s extremely wild swings.

Worries about a U.S. recession, the euro zone’s handling of its sovereign debt problems and Standard & Poor’s downgrade of the United States triple-A credit rating created a crisis of confidence that swept through global financial markets.

That saw investors took cover in safe-haven assets including the Swiss franc, prompting Swiss authorities to vow to take drastic action to curb the currency’s strength.

The recovery in commodity currencies, which were pummelled last week, also stalled. The Australian dollar last stood almost unchanged at $1.0454, having twice failed to break convincingly above $1.0500.

But it was still well off a five-month trough below parity versus the greenback last week. (Additional reporting by Ian Chua in Sydney and Chikafumi Hodo in Tokyo and Masayuki Kitano in Singapore; Editing by Edwina Gibbs)

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