WORLD FOREX: Euro Clambers Off Canvas Amid Italian T-Bill Relief

Thursday, Nov 10, 2011

-- Euro regains some ground as Italian T-bill yields come in under 7%

-- Overall the picture remains negative for the single currency


 
   By William Kemble-Diaz and Alexandra Fletcher 
   Of DOW JONES NEWSWIRES

LONDON (Dow Jones)--The battered euro recovered some ground in European trading Thursday as currency traders grappled for a fresh steer on the euro-zone debt saga and warmed to a successful Italian treasury bill auction that was less expensive than some had feared.

It was similar story with eastern European currencies, but the Australian dollar and British pound sagged ahead of an interest rate decision by the Bank of England.

The euro traded as high as $1.3630 against the dollar, having slipped below $1.35 in Asian trading, as European sovereign bond markets settled down the day after Italian borrowing costs soared into territory considered by many market participants as being unsustainable .

Vague talk that the European Central Bank might announce new plans to further boost Italian bond purchases contributed to the more positive tone, but was dismissed by some analysts.

"It's all just noise," said Kit Juckes, chief currency strategist at Societe Generale. "We're still waiting to see whether the ECB unleashes the nuclear option, and in the meantime, the market is just getting washed around."

Klaas Knot, a member of the ECB's governing council, said the central bank has already done nearly all it can do to stem the euro-zone debt crisis.

However, the underlying picture for the euro zone and its currency remains decidedly negative, which is capping the euro's capacity to make further gains.

And in a sign of growing investor concerns that Italian political upheaval will hamper fiscal reforms needed to tame debt levels and haul down unsustainable borrowing costs, yields on the country's 12-month treasury bill auction, while under 7%, still came in on average at a euro-era high of 6.087%, although demand was solid.

In both Italy and Greece, news is still awaited on the formation of a new government. More broadly, the region's economic outlook is dismal. The European Commission warned of a "deep, prolonged recession" as it slashed its growth forecasts on the continuing fallout from the debt crisis.

But the lingering hope that some sort of solution may yet, somehow, be cobbled together by euro zone policymakers is helping to limit the euro's slide.

"Investors appear understandably reluctant to short the euro in large size for fear of choppy moves," said Deutsche Bank in a note. "Headline risk will likely prevent investors from aggressively selling euros at the lows in the near-term."

Like the euro, eastern European currencies were also mostly steadier, including the zloty, with Polish state-owned Bank Gospodarstwa Krajowego seen buying zloty in small amounts.

Still to come Thursday is the BOE's decision at 1200 GMT, where the Monetary Policy Committee is expected by many to leave its policy levers untouched, for now.

At 1106 GMT, the euro was trading at $1.3572 against the dollar, compared with $1.3542 late Wednesday in New York, according to trading system EBS. The dollar was at Y77.65 against the yen, compared with Y77.83, while the euro was at Y105.38 compared with Y105.37. Meanwhile, the pound was trading at $1.5916 against the dollar, compared with $1.5924 late Wednesday in New York.

The ICE Dollar Index, which tracks the greenback against a trade-weighted basket of currencies, was at 77.752 compared with 77.916 late Wednesday 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 1100 GMT     1.3584     77.63      1.5922     0.9059 
3 Day Trend       Bearish    Bearish    Bearish    Bullish 
Weekly Trend      Bearish    Bearish    Range      Range 
200 day ma        1.3948     79.43      1.6007     0.8822 
3rd Resistance    1.3730     78.00      1.6128     0.9317 
2nd Resistance    1.3694     77.88      1.6060     0.9229 
1st Resistance    1.3630     77.75      1.6010     0.9153 
Pivot*            1.3642     77.75      1.5984     0.9042 
1st Support       1.3524     77.54      1.5872     0.9025 
2nd Support       1.3484     77.45      1.5850     0.9006 
3rd Support       1.3376     77.29      1.5833     0.8958 
 
 
Forex spot:       EUR/GBP 
 
Spot 1100 GMT     0.8532 
3 Day Trend       Bearish 
Weekly Trend      Bearish 
200 day ma        0.8712 
3rd Resistance    0.8597 
2nd Resistance    0.8560 
1st Resistance    0.8553 
Pivot*            0.8535 
1st Support       0.8486 
2nd Support       0.8395 
3rd Support       0.8375