December 7, 2011 / 1:10 PM / 9 years ago

FOREX-Euro falls as Germany dampens summit expectations

* Euro dips after German official warns of summit pessimism
    * Some support for euro seen ahead of ECB meeting Thursday
    * Better-than-expected demand at German Bund auction

    By Nia Williams	
    LONDON, Dec 7 (Reuters) - The euro gave up gains on
Wednesday, weighed down by comments from a senior German
official who watered down some of the optimism building that
European leaders will take decisive steps to contain the
region's debt crisis at a summit on Friday.	
    Berlin is increasingly pessimistic about the chances of a
deal to solve the debt crisis at the summit, because some
governments do not seem to grasp the gravity of the situation, a
German government official said, speaking on condition of
anonymity. 	
    The euro dipped to a session low of $1.3373,
triggering reported stop-loss orders below $1.3400 and was last
trading at $1.3386, down 0.1 percent on the day. Chartists said
trendline support from its Nov. 30 low comes in around $1.3345,
a level that could check losses for now.	
    Market players said the move was exacerbated by thin
end-of-year liquidity conditions, and there were supporting bids
from Asian central banks around $1.3350-60.	
    "This is a bit of an eye-opener. Markets have taken quite a
gloomy reading of the comments, just when there had been some
tentative optimism building," said Neil Mellor, currency
strategist at Bank of New York Mellon.	
    Despite the slide, the single currency held above the
previous session's low near $1.3334. Strategists said investors
would be wary of initiating positions ahead of the EU summit and
a European Central Bank rate decision on Thursday.	
    A key focal point of the summit is whether euro zone leaders
make enough progress toward fiscal integration and more
stringent budgetary discipline to open the way for the ECB to
take a greater role in stabilising euro zone bond markets.	
    Investors are also focusing on possible initiatives to
increase the capabilities of rescue funds that could help
backstop euro zone governments hit by debt market turmoil.	
    But the senior German official poured cold water on the idea
to raise the combined lending limit of the temporary EFSF and
its successor. Some analysts say that is one of the key criteria
that needs to be met for the summit to be considered a success.	
    Before the summit, the ECB is widely expected to announce a
rate cut on Thursday and, following hints from ECB President
Mario Draghi last week, some market players are also starting to
position for the possibility the central bank may step up its
crisis-fighting measures. 	
    "The market has again and again bought into the idea of a
comprehensive and convincing solution from policymakers so there
is potential for some short-term upward movement in the euro
today," said Ulrich Leuchtmann, head of currency research at
Commerzbank. He was speaking before the German official's
pessimistic comments.	
    "Some people are also preparing for the ECB to announce
something more drastic," Leuchtmann added.	
    	
    SNB SPECULATION 	
    The single currency showed little reaction to
better-than-expected demand at a five-year German Bund auction
that nevertheless soothed some concerns that investors may start
shunning the euro zone's strongest economy. 	
    Markets were rattled and the euro fell last month when
Germany suffered one of its least successful debt auctions since
the launch of the single currency, with investors put off by low
returns. 	
    The euro was flat against the Swiss franc at 1.2415 francs
. It earlier spiked to around 1.2440 francs after the
Swiss finance minister said authorities could even consider
negative interest rate and capital control options to curb the
franc's strength. 	
    The single currency has gained in the past two days after a
steep fall in Swiss consumer prices fanned speculation the Swiss
National Bank may raise the floor in euro/Swiss. 	
    There was talk of hedge funds buying euro/Swiss franc call
options with a strike price at 1.2500 francs that are due to
expire in the next week or two. In addition, traders cited talk
of a large euro/Swiss franc option barrier at 1.2500 francs. 	
    The Australian dollar rose 0.2 percent to $1.0250,
supported by data showing Australia's economy grew a brisk 1.0
percent in the third quarter from the previous three months.
       	
    The dollar held steady versus the yen at 77.72 yen 
and was up 0.1 percent on a basket of currencies at 78.56
.
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