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FOREX-Italy downgrade keeps euro pinned near 2-yr lows – Reuters news and update details. I hope you will find useful information for making trading decision today.

Fri Jul 13, 2012 4:11am EDT

* Moody's cuts Italy by 2 notches ahead of debt sale
    * Euro hovers near previous day's 2-year low vs dollar
    * Aussie dollar supported as China's GDP meets expectations


    By Anirban Nag
    LONDON, July 13 (Reuters) - The euro slipped towards
two-year lows on Friday after a Moody's downgrade on Italy that
added to an already bearish stance on the single currency, while
commodity currencies rose on growth figures from China that met
expectations.
    The euro fell to $  1.2190, not far from a two-year
trough of $  1.2166 hit on trading platform EBS the previous day
and on track for its second straight week of losses. It fell to
$  1.2181 in the Asian session after Moody's cut Italy's credit
rating by two notches.
    Moody's warned it could further cut the new Baa2 rating,
which stands just two notches above junk, if Italy's access to
debt markets dried up. 
    The timing of the downgrade was particularly bad, coming
hours before Italy heads to the debt market to raise 5.25
billion euros in bonds with maturities of up to 11 years. A huge
jump in yields could exert pressure on the euro as it would fuel
the risk of debt contagion in the euro zone.
    "The Italian downgrade means demand from international
investors for the bonds on auction today will suffer," said Beat
Siegenthaler, currency strategist at UBS.
    "While there is a risk of a short squeeze that could push
the euro higher, we expect more selling into a bounce. We also
expect the ECB to lower rates and launch unconventional measures
in coming months, all of which will keep the euro under
pressure."
    Near-term support for the euro is expected around $  1.2151,
the June 29, 2010 low, with another support level around $  1.1876
a low struck on June 7, 2010.
    There was some talk of an option barrier in the euro at
$  1.2150. That suggests options players would bid for the euro if
it drops close to that level, offering the single currency some
support.
    The euro has lost 5.7 percent so far this year, already
exceeding the losses it chalked up in 2011, with losses
accelerating after last week's deposit and refinance rate cuts
by the European Central Bank (ECB). 
    The unprecedented cut to zero in the deposit rate means
banks will earn nothing for parking excess funds with the ECB,
and it will encourage investors to sell the low-yielding euro
and buy higher-yielding riskier currencies. 
    Traders expect 800 billion euros that banks used to park
with the ECB would start leaving the euro zone in the hunt for
better yields.
    Analysts said the deposit rate cut also meant the euro had
become the funding currency of choice for higher-yielding
assets. This left the euro vulnerable in times of both improving
and deteriorating market sentiment.
    
    CHINESE GROWTH 
    While the euro hovered near two-year lows against the
dollar, the Australian dollar rose 0 .3 percent to $  1.0169
, boosted by data showing that China's economy grew 7.6
percent in the second quarter from a year earlier.
    China's economic health is always a key driver for Australia
because the Asian powerhouse is Australia's single largest
export market. 
    Though the lowest reading in three years, it was exactly in
line with expectations and came as a relief to investors, who
had been worried about the risks of a weaker result especially
at a time when activity in the U.S. and Europe is slowing.
    "I don't think there is much need to worry about China,
which is a country that can afford to implement fiscal measures
quickly," said Daisuke Karakama, market economist for Mizuho
Corporate Bank in Tokyo.
    "I think a soft landing would be the most reasonable
expectation about the outlook."
    The safe-haven dollar held near a two-year peak hit against
a basket of major currencies the previous day. The dollar index
stood at 83.640, having climbed to 83.829 on Thursday,
the highest level since July 2010.
   Against the yen, the dollar held steady at 79.28 yen.


References

  1. ^ Reprints (www.reutersreprints.com)

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