WORLD FOREX: Spain Weighs on Euro Amid Tight Trading Ranges

Tuesday, Oct 23, 2012

--Euro weakens, dips under $1.30 against the dollar

--Bank of Canada rate decision in focus

--The Hong Kong Monetary Authority intervenes to weaken the Hong Kong dollar


 
   By Clare Connaghan

The euro drifted lower in European trading hours Tuesday, weighed down by gloomy economic signs and a string of regional debt rating cuts in Spain.

Having hit a high of $1.3075 against the dollar in Asian trading, the euro weakened to under $1.30, slumping in line with equity markets across the region.

The shift came after the Bank of Spain said the country's recession probably deepened in the third quarter, with an annual contraction rate of 1.7%, due to the severe austerity drive.

In the first estimate of Spain's economic performance during the July-to-September quarter, the central bank said on a quarterly basis, gross domestic product probably contracted 0.4%, the same rate as in the second quarter.

That gloomier outlook, alongside a downgrade of Catalonia and four other Spanish regions by Moody's Investors Service Inc. Monday and mixed results for the Spanish Treasury's sale of 3.528 billion euros ($4.60 billion) of short-term debt, all dragged European financial markets lower.

European equity markets fell, while Spanish bond yields edged higher, albeit without any dramatic shifts.

Still, few predict a meaningful break out of recent tight trading ranges, with several analysts suggesting that investors appear to be taking their eye off the euro crisis as Spain continues to hold back from an official aid request.

"We're still in this stalemate situation," said Jane Foley, a foreign-exchange strategist at Rabobank in London.

Elsewhere, the Japanese yen regained a little strength in European trading hours after the country's finance minister doused growing expectations that the Bank of Japan, pressed by the government, will take a large-scale easing step next week.

"That is not true," Mr. Koriki Jojima said at a news conference when he was asked about a local media report saying the government has requested a large-scale increase in the amount of assets the central bank buys to support the nation's economy. The denial helped the yen bounce off the 3.5-month low it hit against the dollar and the 5.5-month low it hit against the euro in Asian trading. By 1104 GMT, the dollar was at Y79.87 against the yen, compared with Y79.95, while the euro was at Y103.88, compared with Y104.40.

The Hong Kong Monetary Authority intervened for the second time in a day to weaken the value of the Hong Kong dollar as it continued efforts to deflect inflows in the aftermath of the U.S. Federal Reserve's latest round of stimulus measures and the European Central Bank's recent pledge to buy sovereign bonds. For the third time in less than a week, the city's de facto central bank sold Hong Kong dollars in the foreign-exchange market.

The Chinese yuan rose to a record high against the U.S. dollar on heavy dollar selling from major Chinese banks, though the central bank offered no clear direction via its daily reference rate.

Looking ahead, the Bank of Canada will deliver its decision on interest rates at 1300 GMT. With the central bank expected to keep rates unchanged at 1%, the focus turns to the speech, with observers increasingly anticipating a change in tone to neutral, after a less hawkish speech from Bank of Canada Governor Mark Carney last week. On the data-front euro-zone consumer confidence figures and the U.S. Richmond Federal Reserve's manufacturing survey are both due for release at 1400 GMT.

In emerging markets, the polish zloty weakened to a one-month low against the euro after data showed Polish retail sales rose a slower-than-expected 3.1% in September, compared with a year earlier, well below the 5.8% growth seen in August.

At 1105 GMT, the euro was trading at $1.3002 against the dollar, compared with $1.3061, late Monday in New York, according to trading system EBS. The pound was trading at $1.5988 against the dollar, compared with $1.6015 late Monday in New York.

The Wall Street Journal Dollar Index, which tracks the U.S. dollar against a basket of major currencies, was at 69.899 from 69.772.

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


 
Forex spot:       EUR/USD    USD/JPY    GBP/USD    USD/CHF 
 
Spot 1029 GMT     1.3029     79.90      1.5997     0.9288 
3 Day Trend       Range      Bullish    Bearish    Bullish 
Weekly Trend      Bullish    Bullish    Bearish    Bearish 
200 day ma        1.2871     79.04      1.5861     0.9394 
3rd Resistance    1.3172     80.63      1.6163     0.9371 
2nd Resistance    1.3140     80.25      1.6118     0.9317 
1st Resistance    1.3084     80.02      1.6065     0.9295 
Pivot*            1.3052     79.71      1.6018     0.9272 
1st Support       1.3010     79.71      1.5992     0.9249 
2nd Support       1.2979     79.40      1.5977     0.9215 
3rd Support       1.2915     79.21      1.5900     0.9184 
 
Forex spot:       EUR/AUD 
 
Spot 1029 GMT     1.2665 
3 Day Trend       Bullish 
Weekly Trend      Range 
200 day ma        1.2494 
3rd Resistance    1.2834 
2nd Resistance    1.2734 
1st Resistance    1.2698 
Pivot*            1.2646 
1st Support       1.2636 
2nd Support       1.2615 
3rd Support       1.2581