WORLD FOREX: Euro Holds Onto Gains During Quiet European Session

Friday, Dec 16, 2011

--Euro holds onto overnight gains; traders broadly ignore data releases and euro-zone downgrade fears

--Market sentiment still kept mildly positive by yesterday's good Spanish bond auction and U.S. data

--Swiss franc barely moves after the worst KOF index data for two years


 
   By Alexandra Fletcher 
   Of DOW JONES NEWSWIRES

LONDON (Dow Jones)--The euro held onto overnight gains during a sleepy pre-Christmas European trading session Friday, with traders shrugging off data releases and the fear of imminent sovereign debt downgrades.

Volumes were slight and movements in major currencies were generally small. Euro-zone bond markets were also calm.

"The FX market has been very quiet; it's almost as if everyone was out at their Christmas party last night and now feels too jaded to get involved," said Citigroup in a note to clients.

There was a flutter of excitement early in the European session as loose talk resurfaced that ratings firm Standard & Poors' could downgrade Italy and Spain. As all European Union countries are on negative watch, a downgrade is certainly a possibility, and that is keeping traders somewhat on their toes. But there was no substance to the early chatter, and traders quickly settled back down.

Slowing euro-zone wage growth data were ignored, as were results from a German government party referendum which approved the euro zone bail out plans.

Market sentiment instead was kept mildly positive by Spain which sold EUR6.028 billion of long-term debt Thursday, above the target range. Better-than-expected economic data from the euro zone and the U.S. Thursday was also cited as a marginally supportive factor.

However, while calm prevails for now as investors prepare for the holidays, the fundamentals of the euro-zone crisis are hard to ignore.

"The overall picture for the euro is negative, with recent market developments highlighting its vulnerabilities," said Ian Stannard, head of European foreign exchange strategy at Morgan Stanley.

"There is caution now in the market towards the year-end especially as market liquidity thins and volatility increases," he added.

The Swiss franc barely moved despite economic data that suggested the Swiss economy will grow at a snail's pace next year, with both exports and capital investments restricting growth. The Swiss KOF index, an economic barometer, came in at its weakest reading for two years. But as the data came just one day after the Swiss National Bank's decision to leave the euro against the franc trading floor at CHF1.20, there was no meaningful reaction in the currency.

The Polish zloty was stronger, as the euro dipped below the key PLN4.50 level against the zloty for the first time in a week. Like most emerging currencies, the zloty has enjoyed a rally in recent days, helped in part by improvements in the European bond markets.

Looking ahead, U.S. consumer price index data for November is due at 1330 GMT, with the general consensus that the reading will stay static.

At 1145 GMT, the euro was trading at $1.3028 against the dollar, compared with $1.3016 late Thursday in New York, according to trading system EBS. The dollar was at Y77.90 against the yen, compared with Y77.58, while the euro was at Y101.50 compared with Y101.35. Meanwhile, the pound was trading at $1.5525 against the dollar, compared with $1.5466 late Thursday in New York.

The ICE Dollar Index, which tracks the greenback against a trade-weighted basket of currencies, was at 80.205 compared with 80.286 late Thursday 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 1153 GMT     1.3027     77.88      1.5525     0.9395 
3 Day Trend       Bearish    Range      Bearish    Range 
Weekly Trend      Bearish    Range      Range      Bullish 
200 day ma        1.3815     78.99      1.5925     0.8916 
3rd Resistance    1.3132     78.29      1.5656     0.9549 
2nd Resistance    1.3109     78.16      1.5580     0.9499 
1st Resistance    1.3050     78.01      1.5551     0.9466 
Pivot*            1.3008     77.92      1.5493     0.9446 
1st Support       1.3003     77.73      1.5474     0.9378 
2nd Support       1.2945     77.64      1.5410     0.9321 
3rd Support       1.2860     77.49      1.5272     0.9290 
 
 
Forex spot:       EUR/CAD 
 
Spot 1152 GMT     1.3464 
3 Day Trend       Bearish 
Weekly Trend      Bearish 
200 day ma        1.3830 
3rd Resistance    1.3714 
2nd Resistance    1.3614 
1st Resistance    1.3521 
Pivot*            1.3474 
1st Support       1.3426 
2nd Support       1.3398 
3rd Support       1.3262