WORLD FOREX: Euro Climbs, Shrugs Off German Bund Auction

Wednesday, Apr 11, 2012

-- Calmer session as Spanish and Italian borrowing costs ease off Tuesday's highs

-- Equities also remain in the black, help euro hold mostly above $1.31

-- Expensive Italian auction and earthquake in Indian Ocean have no effect

-- Technically uncovered German bund auction weighs briefly on euro


 
   By Jessica Mead 
   Of DOW JONES NEWSWIRES

LONDON (Dow Jones)--A calmer session prevailed in the currency markets during European hours Wednesday as lower Spanish and Italian bond yields encouraged a more positive outlook among foreign-exchange traders.

The common currency traded above $1.31 against the dollar for most of the session and allowed traders to shrug off events that might have knocked the euro on a gloomier day.

"The London morning session showed some signs of stabilization as Spanish and Italian sovereign yields stabilized from recent highs and the DJ Eurostoxx rallied 1% on better-than-expected earnings news," said strategists at Barclays Capital.

Italian and Spanish benchmark 10-year bond yields retreated from yesterday's highs as the fixed income market paused for breath after Tuesday's sharp selloff and as French and German politicians tell the markets that worries about Spain are overdone.

An expensive--albeit successful--Italian T-Bill auction had little impact on the currency market ahead of the more crucial Italian bond auction Thursday. A magnitude-8.6 earthquake and tsunami off the coast of Indonesia also left the market unruffled.

Of more interest Wednesday was the weak German bund auction, which was technically uncovered for the first time since November 2011. That saw the euro slide to as low as $1.3090 against the dollar before immediately rebounding to the day's highs of $1.3153.

Traders remained sanguine about the poor German bund auction because they viewed it as a function of the extremely low yields offered rather than an indication of poor demand for safe-haven German debt. Ahead of the auction, analysts had warned that the 10-year bund yield level wasn't very attractive from a historical perspective, especially given annual inflation is running around 2%.

In Europe's emerging markets, the Hungarian forint was once again under pressure, with the euro trading close to the psychologically-important HUF300 level. Markets are becoming increasingly nervous that the government's negotiations with the International Monetary Fund won't start in April after all. In addition, lower-than-expected March inflation published earlier Wednesday has eased the pressure on the central bank to raise rates. The ruble also sank to its lowest level in two months after Tuesday's fresh blast of euro crisis nerves.

The Turkish lira also firmed against the dollar Wednesday after the Turkish central bank chose not to conduct one of its regular daily fixed rate 5.75% repo auctions and the February current account deficit was shown to be lower than forecast.

The focus in the session ahead will be on the five Federal Reserve speakers due to take to the stage. Federal Reserve Vice chairman Janet Yellen's speech in New York at 2215 GMT is viewed as the most important by the market, with Yellen seen as a dove. Also on the agenda is the U.S. Federal Reserve Beige Book at 1800 GMT.

At 1050 GMT, the euro was trading at $1.3145 against the dollar, compared with $1.3082 late Tuesday in New York, according to trading system EBS. The dollar was at Y80.84 against the yen, compared with Y80.67, while the euro was at Y106.27 compared with Y105.54. Meanwhile, the pound was trading at $1.5917 against the dollar, compared with $1.5868 late Tuesday in New York.

The ICE Dollar Index, which tracks the greenback against a basket of currencies, was at 79.564 compared with 79.861 late Tuesday in New York.

A summary of key levels for chart-watching technical strategists is below:


 
Forex spot:       EUR/USD    USD/JPY    GBP/USD    USD/CHF 
 
Spot 1059 GMT     1.3147     80.89      1.5931     0.9138 
3 Day Trend       Range      Bearish    Bullish    Bearish 
Weekly Trend      Bearish    Range      Range      Bullish 
200 day ma        1.3428     79.51      1.5824     0.9077 
3rd Resistance    1.3216     81.75      1.6062     0.9254 
2nd Resistance    1.3180     81.30      1.6015     0.9222 
1st Resistance    1.3165     81.19      1.6000     0.9194 
Pivot*            1.3094     81.06      1.5870     0.9181 
1st Support       1.3090     80.56      1.5880     0.9070 
2nd Support       1.3033     80.00      1.5805     0.9050 
3rd Support       1.3004     79.90      1.5770     0.9002 
 
 
Forex spot:       EUR/JPY 
 
Spot 1059 GMT     106.30 
3 Day Trend       Bearish 
Weekly Trend      Bearish 
200 day ma        106.76 
3rd Resistance    107.84 
2nd Resistance    107.47 
1st Resistance    106.54 
Pivot*            106.17 
1st Support       105.44 
2nd Support       105.00 
3rd Support       103.50