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FOREX-Euro stumbles as boost from German data fizzles
March 26, 2012 / 10:10 AM / in 6 years

FOREX-Euro stumbles as boost from German data fizzles

* German IFO survey gives fleeting support to euro
    * Euro faces tough resistance around $1.3300
    * Dollar rises against the yen, up 0.6 pct on day

    By Anirban Nag	
    LONDON, March 26 (Reuters) - The euro managed only
short-lived gains against the dollar on Monday after a
surprisingly positive German business sentiment survey, with
investors worried about the problems of euro zone peripheral
economies opting to sell into the currency's bounce.	
    The dollar moved broadly higher, rising against the Japanese
yen and the Swiss franc, as last week's drop in
U.S. bond yields took a breather. U.S. bond yields have risen
steadily for most of March as the world's largest economy showed
signs of improvement, lending solid support to the dollar.	
    In Europe, the German Ifo think tank's business climate
index rose to 109.8, beating expectations of a steady reading of
109.6 and surprising many traders who were bracing for a soft
number after last week's weak reading of flash purchasing
managers' indices (PMIs) across the euro zone. 	
    The euro rose to above $1.3260 from around $1.3235
before the influential German survey was released, but quickly
gave up those gains to trade at $1.3200, down 0.55 percent on
the day.	
    Traders said Middle-Eastern investors were big sellers, with
bids cited at $1.3150. Traders said that with the euro failing
to breach resistance at $1.3302 last week, a level representing
a 61.8 percent retracement of its late February to mid-March
fall, the bias was for losses.	
    Investors shied away from chasing last week's bounce as the
euro faced a slew of risk events this week, also including bond
auctions in Italy and a meeting of euro zone finance ministers.
Italy is seeking to raise up to 7.5 billion euros amid renewed
pressure on peripheral euro zone debt. 	
    "The German Ifo data did give the euro a bit of a leg
higher, but it also highlighted the dichotomy between the German
economy and the strugglers in the euro zone periphery," said
Steve Barrow, G10 currency strategist at Standard Bank.	
    "We also have tension creeping up in the euro zone
peripheral debt market and that should keep the euro's bias more
towards $1.30 than towards $1.35."	
    Barrow said the focus would be on Spain's budget on Friday,
as Prime Minister Mariano Rajoy juggles to present a tough 
budget amid rising unemployment. His ruling party suffered a
setback at the weekend, failing to secure an outright majority
in a regional election.	
    The euro also lost ground against the yen, easing
to 109.15, well below a five-month high of 111.43 yen.	
    	
    DOLLAR FIRMER	
    The dollar advanced against the Japanese currency, gaining
0.6 percent to 82.80 yen and inching closer to an
11-month high of 84.19 struck on March 15. Strong support is
seen at the 38.2 percent retracement of its February-March rise
at 81.06 yen.	
    Traders said they would prefer to buy the dollar and sell
the yen, with repatriation inflows ahead of the Japanese fiscal
year-end on March 31 unlikely to change the bearish sentiment
towards the Japanese currency over the medium term.	
    "As long as the U.S. economy shows signs of outperforming
the others, the dollar would be supported," said Paul Robson,
currency strategist at RBS Global Banking.	
    "We are expecting the dollar/yen pair to trade in a 80-85
yen range with a risk of an upside break. A lot will depend on
whether the economies outside the U.S. also pick up," he added.	
    The dollar index, a gauge of its performance against a
basket of major currencies, rose 0.36 percent to 79.636,
having recovered from a two-week low last week.	
    The yield on U.S. 10-year notes rose about two basis points
to 2.25 percent on Monday. But any signs of
dovishness from Federal Reserve Chairman Ben Bernanke who is
scheduled to speak at 1200 GMT, could have an impact on the
dollar.	
    The dollar/yen currency pair has a strong correlation with
the spread between U.S. and Japanese bond yields. A wider spread
tends to boost the greenback while a narrowing one pushes the
dollar lower.	
    The growth-linked Australian dollar was 0.1 percent
lower at $1.0443, steadying somewhat after a steep fall last
week.

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