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FOREX-Euro under pressure due to uncertainty over Spain bailout
October 9, 2012 / 4:05 AM / 5 years ago

FOREX-Euro under pressure due to uncertainty over Spain bailout

* Euro off 2-week high as Spain decision seen not imminent

* Market may shift focus to earnings, share prices

* Limited reaction after Greece seeks deficit target extension

TOKYO, Oct 9 (Reuters) - The euro was on the back foot on Tuesday as uncertainty about Spain persisted after euro zone ministers said the country did not need a bailout yet, dashing investors’ hopes they might inch closer to a resolution of the debt problems of the region’s fourth largest economy.

Caution on company earnings also kept risk assets, including the euro, in check, as investors weighed the impact of the global slowdown on corporate earnings due out this week.

The euro bought $1.2971 in early Asian trade, s lightly higher than l ate U.S. levels but s till about a full cent be low a two-week high of $1.3072 hit on Friday following an unexpected drop in the U.S. jobless rate.

Against the yen, it fetched 101.70 yen, likewise off Friday’s two-week high of 102.80 yen.

Euro zone finance ministers, gathering in Luxembourg, delivered a united defense of Spain on Monday, saying the country was taking steps to overhaul its economy, successfully funding itself in the financial markets and did not need a bailout, at least for now.

Still, selling in the euro was curbed due to widespread expectations that Madrid would eventually apply for aid, and Spanish bond yields were now stabilising far below their peaks in July.

Uncertainty over Greece was not having a decisive impact on the euro even though there was little sign of progress in negotiations on how to get the country back on track with its bailout programme.

Greek Finance Minster Yannis Stournaras said international lenders were considering its request to give Greece two more years to reach its budget deficit reduction targets but he added they had just started discussions.

With European policymakers seen putting major decisions on the back burner for now, short-term players may shift their focus to upcoming corporate earnings, market players said.

“The negative correlation between U.S. stock prices and the dollar has remained very high. We expect the dollar to stay under pressure if share prices keep rising,” said Junya Tanase, chief FX strategist at JPMorgan Chase.

On Monday, U.S. stocks slipped from recent highs on anticipation the earnings season would be weak, though trading was extremely light as the U.S. government and the bond market were closed for the Columbus Day holiday.

Signs of slowdown in global growth, especially China, are raising worries many companies may have to lower their guidance.

The dollar’s index against a basket of currencies stood at 79.55, steady from Monday but higher than Friday’s two-week low of 79.103. Still it needed to rise convincingly above the Oct. 1 high of 80.147 to start a fresh uptrend.

Against the yen, which often tends to buck the dollar’s overall trend and underperform when risk appetite is strong, the dollar was little changed at 78.35 yen, but still below a two-week high of 78.88 set on Friday.

The Australian dollar bounced back 0.4 percent from late U.S. levels to $1.0233, though the rebound came only after it hit a fresh three-month low of $1.0149 on Monday.

The Australian currency, often used as a proxy for trade on the Chinese economy because of China’s significance to the Australian economy, has been under pressure in recent months on signs of a slowdown in the world’s second-largest economy.

The currency could test $1.0103, a 50 percent retracement of the currency’s rally from May to September with the Australian central bank seen cutting rates further down the road.

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