December 23, 2010 / 12:43 PM / 9 years ago

FOREX-China support steadies euro, outlook shaky into 2011

* Euro steady vs dollar, Swiss franc but outlook shaky

* China reiterates support for euro zone countries

* Dlr/yen breaks below key support, stops hit in thin trade

* Yen unmoved as N.Korea minister says ready for “holy war”

(Adds quote, updates prices)

By Neal Armstrong

LONDON, Dec 23 (Reuters) - The euro steadied against the dollar and the Swiss franc on Thursday, helped by supportive comments from China, but analysts said the outlook for the single currency was shaky, with fresh losses expected into 2011.

Liquidity was at a premium in currency markets ahead of year-end, with traders saying flows were having a bigger impact on price than fundamentals.

A North Korean minister saying his country was prepared to wage a “holy war” against the South using its nuclear deterrent [ID:nTOE6BL01] had no discernible impact on major currencies.

“South Korea has realised that playing hardball works and in the end, North Korea is a paper tiger. So no one is expecting war or anything anytime soon,” said Geoffrey Yu, currency strategist at UBS in London.

A Chinese Foreign Ministry spokeswoman said China was willing to help countries in the euro zone return to economic health and would support the International Monetary Fund bailout package for the bloc. [ID:nBJI002501]

The Jornal de Negocios daily reported on Wednesday that China was looking to buy between 4 and 5 billion euros of Portuguese sovereign debt to help the country ward off pressure in bond markets.

But the single currency’s outlook remained shaky at best and more losses into 2011 are seen likely as the euro zone debt crisis looks set to drag on.

“To have any discernible effect China will have to buy a lot more than 5 billion euros if they expect to have any impact on the negative sentiment surrounding Europe,” said Michael Hewson, currency analyst at CMC Markets.

The euro was down slightly against the dollar EUR= at $1.3083, close to the 200-day moving average at $1.3091. In the past week, the euro has fallen about 1 percent against the greenback.

“We expect further weakness for the euro by the end of the first quarter of 2011, and in the near term a break of the 200-day moving average will be important,” said Elsa Lignos, currency strategist at RBC Capital Markets.

The euro was up 0.4 percent at 1.2513 Swiss francs EURCHF=, after hitting an all-time low of 1.2448 on trading platform EBS on Wednesday.

“As long as there are periphery concerns in the euro zone, a lower euro/Swiss is very hard to fight,” Lignos said.

Investors have been flocking to the safe-haven status of the Swiss franc and shifting out of euros on worries that the euro zone debt crisis will rumble on.

AUSSIE DOLLAR FIRM

The Australian dollar AUD=D4 was at a one-month high against the greenback around $1.0050 thanks to optimism about the global economy, which has supported commodity prices .CRB and global stocks .MIWD00000PUS.

The yen gained 0.7 percent against the dollar to 82.96 yen JPY= and rose 0.8 percent versus the euro to 108.55 yen EURJPY=R in thinned trade with Tokyo closed for a national holiday and ahead of the Christmas holidays in the United States and Europe.

Support at the top of the Ichimoku cloud gave way in Europe at 83.08 yen per dollar. The base of the cloud was seen as the next support, at 82.07 yen. Bids were seen around 82.80 yen.

A slew of U.S. data is set for release on Thursday before the bond market closes for the extended holiday weekend. Market players will focus on November figures for durable goods orders, personal income and spending and weekly jobless claims.

Additional reporting by Tamawa Desai

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