Euro gains foothold, eyes on ECB
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[May 12, 2014]
— The euro started the week
on a steadier footing, looking to comments by European Central Bank
officials and a flow of data for fresh direction after two straight
sessions of losses.
Dealers said the market had calmed after a turbulent reaction to ECB
President Mario Draghi's statement last week that the bank was
"comfortable" with easing monetary policy in June.
Analysts pointed to appearances by some of Draghi's colleagues -
most notably Bundesbank chief Jens Weidmann - as possible sources of
more clarity on whether the bank is really ready to act. The euro
took a tiny dip after Austrian central bank chief Nowotny was
reported as saying it would take more than a cut in interest rates
to combat low inflation.
The macroeconomic factors that have bolstered the euro this year
have not disappeared, however, and few analysts were willing to
stick their necks out and predict a further sharp fall for the
"If last week's move was to fully discount a June easing of policy
by the ECB, I think the risk is that the data and the comments from
policymakers this week will be on the hawkish side," said Adam Cole,
global head of FX strategy with RBC Capital Markets in London.
The euro, which plumbed a one-month trough of $1.3745 on Friday, was
less than 0.1 percent higher on the day at $1.3759. It has shed
roughly 1.7 percent since hitting a 2-1/2-year high of $1.3995 on
Against the yen, the single currency edged up 0.1 percent to 140.21
yen, not far from a two-month trough of 139.88 set on Friday.
"At least Draghi got things going somehow last week. We've had the
kneejerk move now we need to see if it will go further," said a
dealer with one bank in London.
"I think the euro will trade heavy for the next week or two but as
we get closer to the ECB's June meeting there will then be the
uncertainty of will they, won't they."
With its decline since Thursday, the euro has retreated toward the
middle of its range so far this year. Possible support lies at that
midpoint of its 2014 range near $1.3735, and the euro's 100-day
moving average at about $1.3740.
One major barrier in the short term to a weaker euro, as ECB
policymakers have made clear they would prefer, is the lack of any
evidence of broader interest in the dollar.
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A year of gains for the U.S. currency was the central scenario of
many banks at the start of 2014. The failure of the U.S. economy to
launch higher and provoke the Federal Reserve into a clear promise
of higher interest rates have shaken those bets.
The dollar fell just over 0.1 percent against sterling and is still
within sight of the long-term resistance at $1.70. It was flat
against the yen
"While I still think the euro is in the process of peaking, the most
likely catalyst for a durable turn in the trend is a push higher in
US (market) rates, rather than lower euro ones," said Kit Juckes, a
strategist with French bank Societe Generale in London.
"Only dramatic ECB action - large-scale asset purchases and an
explicit commitment to weaken the currency - would change the trend
independently of what happens in the U.S. and I don't think the ECB
has the inflation forecasts to justify that."
Weidmann is due to speak on Wednesday, while the ECB's German
Executive Board member Sabine Lautenschlaeger speaks on Tuesday.
German officials have proven the most vociferous opponents of more
aggressive policy easing in the past.
(Editing by Toby Chopra)
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