Euro to slide further next week

NEW YORK - The euro is bound to slide further against most major currencies next week as a $1 trillion euro zone rescue effort is met with skepticism.

By (Reuters)

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Published: Fri 14 May 2010, 11:44 PM

Last updated: Thu 2 Apr 2015, 9:47 AM

Having climbed close to $1.31 on Monday after the emergency package was unveiled, the single currency resumed declines and it is on track to close the week at its lowest level since October 2008.

Traders and investors said risks relating to implementation of the package, concerns over public sector finances and banking sector weakness could stifle a fragile recovery in the 16-member currency bloc.

They said the European Central Bank — which started buying the region’s government bonds this week — may have to keep interest rates low for a prolonged period.

“Euro bearishness is taking a momentum of its own,” said Daniel Katzive, director for global foreign exchange at Credit Suisse Securities in New York.

In midday trading in New York, the euro was 1.3 percent lower at $1.2367, after trading as low as $1.2358 earlier, according to electronic trading platform EBS. .

The euro fell 4.2 percent this week and more than 13 percent against the U.S. dollar this year, making it the biggest loser among major currencies.

Boris Simonder, a technical analyst at Nordea Bank in Sweden said the next support level for the euro is around the at $1.2330 region, followed by $1.18-$1.20.

“Our technical target remains at $1.1850 and we continue recommending investors to sell on rallies,” he said. “It’s been the winning strategy.”

Simonder added that there could be also some selling in dollar/yen in the short term, with key resistance at 95.

“Should the pair break 95, an upside target towards 97.50 is attainable,” he said.

The dollar was ending the week on a lower note against the Japanese yen, down 1 percent at 91.84 yen.

Debt woes in Europe are having an impact on broad risk sentiment. Investors are favoring safer assets such as the U.S. dollar and Japanese yen. Higher yielding currencies such as the Australian dollar and Brazilian real are falling.

“Overall risk appetite is coming under pressure now,” Katzive at Credit Suisse added.

Less return on risk

UBS AG, one of the world’s largest currency traders, said it is closing it Growth Index model “long momentum,” or long risk, recommendation at today’s New York close.

“This year has so far offered less return on risk than had been expected at the end of 2009,” Geoffrey Yu, a currency analyst at the bank said in a note to clients. “Despite improved growth prospects across the globe, heightened sovereign risk and the threat of monetary and fiscal tightening have deeply dented investor appetite.”

UBS has revised its long-term forecasts and now targets EUR/USD at $1.15 by year end and $1.10 for 2011, compared with $1.30 and $1.25 previously.

The U.S. economic calendar in the coming week is relatively light and will take a back seat to developments in the euro zone and equity markets. The highlights are Treasury Net Capital Inflows figures and housing data on Monday, followed by producer prices on Tuesday, and consumer prices figures on Wednesday.

On Wednesday the Federal Reserve will release minutes of the FOMC rate-setting meeting for the month of April.

Analysts said while the debt crisis in Europe will continue to dictate sentiment, the silver lining is that the global economy, ex-Europe, continues to recover.



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