-- Euro fails to sustain break above $1.43 against dollar
-- Talk of large euro sales overhang
-- Swiss franc reverses losses after mixed central bank messages
Like other major currencies, the euro cranked higher against the dollar Thursday following soggy U.S. manufacturing data indicated persistent weakness in the U.S. economy. The pound and Australian dollar largely held onto those gains Friday.
But the Spanish protests reminded investors of the biggest potential domino should euro-zone policymakers fail to contain Greece's debt problems, and widespread talk of options barriers being fiercely defended at the $1.4360 area, capped the euro's rise.
More broadly, Kit Juckes, head of currency research at Societe Generale, said a weaker dollar bias was settling in because investors had downwardly adjusted growth expectations and were satisfied--at least for now--that the global economic cycle is passing through a soft patch rather than poised for a reversal, even as the end of U.S. quantitative monetary easing looms.
"The natural reaction of markets is to look for the floor once you've reached the ceiling in the growth rate," citing the drag on growth from Chinese monetary tightening, high oil prices, Japanese disasters, budgetary cutbacks and fading U.S. fiscal stimulus.
But that process of downward adjustment appears to have run its course, putting the attention back onto the ample liquidity sloshing around financial markets and encouraging investors to load up on riskier, higher-yielding assets.
"For currencies that really means... a returning theme of the yen, the Swiss franc and the dollar not being the world's favorite currencies," Juckes said. "So the euro can head back through $1.45 and toward $1.50 on that basis, the dollar can make it up to Y83 again, and even the Australian dollar can get back its mojo."
But he emphasised that a pre-weekend close in the euro above $1.43 against the dollar would be key, particularly with the $1.4360 option set to expire early next week.
A move out in Spanish bond spreads also showed fixed income investors were mildly unnerved by regional elections due at the weekend in Spain, against a backdrop of mounting political demonstrations, causing some strategists to curb their enthusiasm for the single currency.
"In the short term, the euro is more likely to push higher against the dollar, even though the news from the euro zone is not going to be great," said Steve Barrow of Standard Bank. "I'm not that sure we can get back above the highs again, back above $1.50-plus."
The Swiss franc provided some intrigue, cranking higher to reverse losses seen Thursday after the country's economy minister seemed to suggest that the Swiss central bank might take action against its strong currency.
However, while the pre-prepared text of his speech included this note, the speech itself did not, Dow Jones Newswires reported Friday. That revelation may have been a factor behind the franc's ascent in London trading hours Friday, Citigroup said in a note to clients.
The data calendar was quiet in European hours. Figures showing the euro zone's current account deficit narrowed in March had little impact on currency markets.
Up ahead is Canadian CPI data, with the market looking for some direction on the timing of the next Canadian interest rate hike and the Canadian dollar holding around CAD0.9653 against the U.S. dollar.
Among emerging market currencies, the South African rand extended its gains in the wake of regional elections earlier in the week in choppy trade to trade at ZAR6.884 against the dollar.
"There's a lot of noise but not really much direction, a bit like other currency markets," he said.
At 1144 GMT, the euro was trading at $1.4269 against the dollar, compared with $1.4312 late Wednesday in New York, according to trading system EBS.
The dollar was at Y81.57 against the yen, compared with Y81.59, while the euro was at Y116.42 compared with Y116.80, after the Bank of Japan left rates unchanged as expected.
The ICE Dollar Index, which tracks the dollar against a trade-weighted basket of currencies, was trading at 75.25 compared with 75.399 late Wednesday in New York.
A summary of key levels for chart-watching technical strategists is below:
copied from http://online.wsj.com/article/BT-CO-20110520-705915.html
-- Talk of large euro sales overhang
-- Swiss franc reverses losses after mixed central bank messages
By William Kemble-Diaz Of DOW JONES NEWSWIRESLONDON (Dow Jones)--The euro gave up its gains against the faltering dollar in European trading hours Friday, as talk of a large overhang of potential euro sales, and concern about anti-austerity protests in Spain, capped the common currency's rise.
Like other major currencies, the euro cranked higher against the dollar Thursday following soggy U.S. manufacturing data indicated persistent weakness in the U.S. economy. The pound and Australian dollar largely held onto those gains Friday.
But the Spanish protests reminded investors of the biggest potential domino should euro-zone policymakers fail to contain Greece's debt problems, and widespread talk of options barriers being fiercely defended at the $1.4360 area, capped the euro's rise.
More broadly, Kit Juckes, head of currency research at Societe Generale, said a weaker dollar bias was settling in because investors had downwardly adjusted growth expectations and were satisfied--at least for now--that the global economic cycle is passing through a soft patch rather than poised for a reversal, even as the end of U.S. quantitative monetary easing looms.
"The natural reaction of markets is to look for the floor once you've reached the ceiling in the growth rate," citing the drag on growth from Chinese monetary tightening, high oil prices, Japanese disasters, budgetary cutbacks and fading U.S. fiscal stimulus.
But that process of downward adjustment appears to have run its course, putting the attention back onto the ample liquidity sloshing around financial markets and encouraging investors to load up on riskier, higher-yielding assets.
"For currencies that really means... a returning theme of the yen, the Swiss franc and the dollar not being the world's favorite currencies," Juckes said. "So the euro can head back through $1.45 and toward $1.50 on that basis, the dollar can make it up to Y83 again, and even the Australian dollar can get back its mojo."
But he emphasised that a pre-weekend close in the euro above $1.43 against the dollar would be key, particularly with the $1.4360 option set to expire early next week.
A move out in Spanish bond spreads also showed fixed income investors were mildly unnerved by regional elections due at the weekend in Spain, against a backdrop of mounting political demonstrations, causing some strategists to curb their enthusiasm for the single currency.
"In the short term, the euro is more likely to push higher against the dollar, even though the news from the euro zone is not going to be great," said Steve Barrow of Standard Bank. "I'm not that sure we can get back above the highs again, back above $1.50-plus."
The Swiss franc provided some intrigue, cranking higher to reverse losses seen Thursday after the country's economy minister seemed to suggest that the Swiss central bank might take action against its strong currency.
However, while the pre-prepared text of his speech included this note, the speech itself did not, Dow Jones Newswires reported Friday. That revelation may have been a factor behind the franc's ascent in London trading hours Friday, Citigroup said in a note to clients.
The data calendar was quiet in European hours. Figures showing the euro zone's current account deficit narrowed in March had little impact on currency markets.
Up ahead is Canadian CPI data, with the market looking for some direction on the timing of the next Canadian interest rate hike and the Canadian dollar holding around CAD0.9653 against the U.S. dollar.
Among emerging market currencies, the South African rand extended its gains in the wake of regional elections earlier in the week in choppy trade to trade at ZAR6.884 against the dollar.
"There's a lot of noise but not really much direction, a bit like other currency markets," he said.
At 1144 GMT, the euro was trading at $1.4269 against the dollar, compared with $1.4312 late Wednesday in New York, according to trading system EBS.
The dollar was at Y81.57 against the yen, compared with Y81.59, while the euro was at Y116.42 compared with Y116.80, after the Bank of Japan left rates unchanged as expected.
The ICE Dollar Index, which tracks the dollar against a trade-weighted basket of currencies, was trading at 75.25 compared with 75.399 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 1034 GMT 1.4274 81.56 1.6244 0.8810 3 Day Trend Bullish Bullish Range Bearish Weekly Trend Bearish Bearish Bearish Bearish 200 day ma 1.3808 83.49 1.5987 0.9514 3rd Resistance 1.4389 82.23 1.6355 0.8947 2nd Resistance 1.4360 82.05 1.6304 0.8880 1st Resistance 1.4345 81.87 1.6285 0.8828 Pivot* 1.4281 81.76 1.6203 0.8817 1st Support 1.4245 81.46 1.6211 0.8779 2nd Support 1.4236 81.39 1.6139 0.8764 3rd Support 1.4206 81.25 1.6107 0.8695 Forex spot: EUR/GBP Spot 1034 GMT 0.8784 3 Day Trend Bullish Weekly Trend Bearish 200 day ma 0.8634 3rd Resistance 0.8881 2nd Resistance 0.8858 1st Resistance 0.8840 Pivot* 0.8816 1st Support 0.8773 2nd Support 0.8761 3rd Support 0.8725-By William Kemble-Diaz, Dow Jones Newswires; 44-20-7842-9347; william.kemble-diaz@dowjones.com
copied from http://online.wsj.com/article/BT-CO-20110520-705915.html
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