FOREX NEWS – Euro boosted by PMIs; counters Greek setback

By: Hugo McDougall in Uncategorized on Jan. 24, 2012

Euro zone service sector PMI eases recession fears

Euro rises to near 3week high versus dollar, 4week high versus yen

Negotiations over Greek debt stall but hope for deal still alive

LONDON, Jan 24 The euro hit a near threeweek peak in volatile trade versus the dollar on Tuesday as a survey of the euro zone service sector topped forecasts and eased fears of a recession, though markets were edgy as talks to avert a messy Greek default stalled.

Surveys showed the euro zone may yet escape recession thanks to a surprise upturn in the service sector which offset ongoing contraction in manufacturing this month, briefly pushing the euro to the day’s highs.

“Germany’s recent ZEW survey was better than expected and now its PMI is also better which is lifting the overall PMI survey for the euro zone,” said Jane Foley, senior currency strategist at Rabobank.

“The market has been positioned for a downturn in Germany and maybe it has got too pessimistic on that front for now,” she added.

The common currency rose to its highest in nearly threeweeks versus the dollar of $1.3063 on trading platform EBS, before falling back to $1.3010, down 0.1 percent for the day. Traders cited strong hedge fund selling putting pressure on the euro.

Uncertainty over Greece’s ability to avert a chaotic default were making for increased volatility after euro zone finance ministers sent back a Greek debt swap offer, saying the coupon demanded by bondholders was too high.

Private creditors say a 4.0 percent coupon is the least they can accept if they are going to write down the nominal value of the debt they hold by a half.

But hopes for a compromise deal were still alive and keeping the euro afloat.

“I think a deal will eventually be reached on Greece and for euro/dollar this has largely been priced in,” said Lauren Rosborough, senior currency strategist at Societe Generale.

“Short positioning hasn’t been taken away in the euro and I wouldn’t want to discount a further rally from here but in the medium term our core view remains for euro/dollar to fall back to $1.17 by midyear,” she added.

IMM speculative positioning data shows an extreme short position in the euro, which leaves it vulnerable to pullbacks, but market participants were sceptical over the sustainability of any rallies.

The euro was undermined by suggestions that Portugal, seen as the second most risky country in the euro zone, could be the next potential default candidate after Greece.

Further dousing optimism, Germany denied a report that it was ready to boost the combined firepower of the euro zone’s rescue funds to 750 billion euros .

The euro was still well above its 17month EBS low of $1.2624 hit on Jan. 13, leading some to wonder if it might have bottomed for now.

Resistance was at 1.3077/1.3100, the Jan. 3 EBS high and a 38.2 percent retracement of the NovemberJanuary slump. But a break above the October EBS low of $1.3145 was still needed to turn the technical picture positive, traders said.

BOJ ON HOLD

Against the yen, the euro hit a near fourweek high of 100.84, moving further away from an 11year EBS low of 97.04 marked on Jan. 16. Traders cited Japanese importer demand triggering stoplosses around 100.50.

The dollar rose to a near fourweek high of 77.375 yen in a move which traders said was largely driven by euro/yen demand. Reaction was muted to the Bank of Japan’s widely expected decision to hold policy steady at its regular meeting, as well as cut its economic forecasts.

The dollar held above a threeweek low of 79.602 hit on Monday to stand at 79.914. Support lies at 79.52, around the Jan. 3 low and the 55day moving average around 79.57.

Waning risk appetite pressured commodity currencies, with the Australian dollar slipping 0.7 percent to $1.0456, off a 12week peak of $1.0574 set overnight.

Investors also awaited the outcome of the Federal Reserve policy meeting that starts later on Tuesday.

While no policy change is expected, the Fed will likely show that its policymakers do not expect to start hiking interest rates again until the first half of 2014, an five years after chopping them to near zero.

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