Euro slide pauses but debt anxiety continues
The euro was poised to end its worst week in about three months on an upbeat note, taking
heart from light short-covering in most riskier assets on Friday on the back of
a well-bid Spanish bond sale and solid U.S.economic
data.But the mood remained brittle with possible cuts in the credit ratings of euro zone countries
looming after a key EU summit last week offered little respite to turbulent euro
zone bond markets and cash-starved European banks.This yanked the
legs from under the currency that had until then remained surprisingly
resilient, dragging it 2.7 percent down on the week -- the biggest drop since
early September -- and pushing yields on 10-year Italian bonds above 7 percent
for the first time in two weeks.
On Friday, the euro was supported at $1.3028, coming off an 11-month low of $1.2945 hit earlier
in the week. Thursday's trading range for the euro was well within its band from
Wednesday, suggesting its downside momentum has waned -- for
now."My sense is that the market is satisfied, having driven the euro below the important $1.30
support level earlier this week. But most people are thinking it's going to hit
$1.25 within the January-March period," said Michiyoshi Kato, a senior trader at
Mizuho Corporate Bank.
Kato said the euro is vulnerable as the risk of downgrades looms large for the region and
investors fear some states may develop cold feet with regard to the proposals on
a tighter fiscal regime that were the centerpiece of the
summit."Franceis the biggest worry. The spread on its bond yields versus German Bunds has
widened since the beginning of the crisis and if it loses its triple A credit
rating, the crisis may start engulfing the euro zone
core. At one point
the euro climbed as high as $1.3045 on dip-buying from hedge funds, but it
stalled ahead of a layer of offers at $1.3050-60, placed below moderate
resistance around $1.3065 -- a 38.2 percent retracement of its Dec. 8-14
slump."S&P's negative credit watch continues to hang over the euro zone bond market and
negotiations on the Greek PSI (debt swap talks) are far from reaching a positive
conclusion," Luigi Speranza, an analyst at BNP Paribas, wrote in a client
note "Hence we are left with the impression that market pressure will have to intensify in order to
trigger further policy steps that could then set the basis for a more enduring
stabilization of the euro zone bond market."
http://www.reuters.com/article/2011/12/16/markets-forex-idUSL3E7NG1PP20111216
heart from light short-covering in most riskier assets on Friday on the back of
a well-bid Spanish bond sale and solid U.S.economic
data.But the mood remained brittle with possible cuts in the credit ratings of euro zone countries
looming after a key EU summit last week offered little respite to turbulent euro
zone bond markets and cash-starved European banks.This yanked the
legs from under the currency that had until then remained surprisingly
resilient, dragging it 2.7 percent down on the week -- the biggest drop since
early September -- and pushing yields on 10-year Italian bonds above 7 percent
for the first time in two weeks.
On Friday, the euro was supported at $1.3028, coming off an 11-month low of $1.2945 hit earlier
in the week. Thursday's trading range for the euro was well within its band from
Wednesday, suggesting its downside momentum has waned -- for
now."My sense is that the market is satisfied, having driven the euro below the important $1.30
support level earlier this week. But most people are thinking it's going to hit
$1.25 within the January-March period," said Michiyoshi Kato, a senior trader at
Mizuho Corporate Bank.
Kato said the euro is vulnerable as the risk of downgrades looms large for the region and
investors fear some states may develop cold feet with regard to the proposals on
a tighter fiscal regime that were the centerpiece of the
summit."Franceis the biggest worry. The spread on its bond yields versus German Bunds has
widened since the beginning of the crisis and if it loses its triple A credit
rating, the crisis may start engulfing the euro zone
core. At one point
the euro climbed as high as $1.3045 on dip-buying from hedge funds, but it
stalled ahead of a layer of offers at $1.3050-60, placed below moderate
resistance around $1.3065 -- a 38.2 percent retracement of its Dec. 8-14
slump."S&P's negative credit watch continues to hang over the euro zone bond market and
negotiations on the Greek PSI (debt swap talks) are far from reaching a positive
conclusion," Luigi Speranza, an analyst at BNP Paribas, wrote in a client
note "Hence we are left with the impression that market pressure will have to intensify in order to
trigger further policy steps that could then set the basis for a more enduring
stabilization of the euro zone bond market."
http://www.reuters.com/article/2011/12/16/markets-forex-idUSL3E7NG1PP20111216