Euro gains foothold, eyes on ECB speakers

[May 12, 2014]  LONDON (Reuters) — 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 currency.

"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 Thursday.

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.

LAME DOLLAR

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.

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)

[© 2014 Thomson Reuters. All rights reserved.]

Copyright 2014 Reuters. All rights reserved. This material may not be published, broadcast, rewritten or redistributed.