Thursday, 7 June 2012

Euro firm on policy hopes, Aussie jumps after jobs surprise

Market players think there are still massive short positions in the euro as data from a US financial 
watchdog showed speculators’ short position in the euro was at a record high last week. – File photo

TOKYO: The euro held firm against the dollar on Thursday, as vague hopes of more policy action, both in Europe and the United States, led short-term players to wind back their massive bets against the currency.

Also boosting risk sentiment in general, the Australian dollar shot up to a three-week high after data showed Australian employment surged in May despite forecast of a fall.

“We are seeing positive data after people had been selling the euro and all other stuff. So now those (currency pairs) with heavy positions suddenly look the most dangerous,” said a chief trader at a European bank.

The single currency last stood at $1.2569, having briefly risen to $1.25859, its highest level since late May and about 2.3 per cent above a two-year low of $1.2288 hit last week.

Market players think there are still massive short positions in the euro as data from a US financial watchdog showed speculators’ short position in the euro was at a record high last week.

“This is driven by position unwinding, rather than full-fledged risk-on trade. Some are looking to start fresh selling but there could be more short-covering before that. I’d think the euro could rise to around $1.2600-$1.2650,” said Takahiro Suzuki, vice president of forex at Nomura Securities.

The euro has an immediate resistance around $1.2600, followed by $1.2671, a level representing the 38.2 per cent retracement of its May 1-June 1 fall.

Speculation of more stimulus from the US Federal Reserve also helped bolster risk assets as some of the Fed’s top officials beat the drum for a need of stimulus.

Janet Yellen, the Fed’s vice chair, laid out the case for more easing to bolster a fragile economy as financial turmoil in Europe mounts.

While Yellen is known to be a dove and her comments did not surprise markets, other officials, such as Atlanta Fed President Dennis Lockhart, also talked about possible need for an action, saying his level of concern had risen since the Fed’s April meeting.

Their comments are raising speculation Federal Reserve Chairman Ben Bernanke may drop a clearer hint on further easing at his testimony on the economic outlook before the congressional Joint Economic Committee at 1400 GMT.

“Since the weak US job data, there’s been rising speculation of more stimulus from the Fed. That is making dollar long positions uncomfortable,” said Katsunori Kitakura, associate general manager of market-making unit at Sumitomo Mitsui Trust Bank.

“The market is sensing some actions from policy makers may be drawing nearer.”


In Europe, while there was no concrete progress on steps to support Spain, European sources said on Wednesday that Germany and European Union officials are urgently exploring ways to rescue Spain’s stricken banks.

Spain has not yet requested outside assistance and is resisting being placed under international supervision, but signs of sense of crisis on the side of policymakers – such as Group of Seven conference call on Tuesday – were making traders uneasy with holding large euro short positions.

Still, analysts warned that markets will remain choppy, with risk assets vulnerable to further falls.

“Market expectations for a new wave of quantitative easing in the major developed market economies have increased, but this might not tackle the cause of the current challenges or, indeed, allay market anxieties related to banking and sovereign solvency,” said Koon Chow, strategist at Barclays Capital.

“Until these problems are tackled head on, it will be hard for emerging market assets to rally independently.”
In the short-term, traders said further gains in the euro will depend on Spain’s bond auction due later in the day. The sale of up to 2 billion euros of bonds is seen as a crucial test of Madrid’s ability to tap the bond market.

The biggest mover in Asia was the Australian dollar, which rose to three-week high of $0.9967 on upbeat job data, which came a day after upbeat GDP data. It last stood at $0.9960, up 0.4 per cent on the day.

The US dollar managed to outperform the yen, which was hit broadly as risk appetite improved. The yen was also dampened by recent threats from Japanese authorities to curb its strength.

The dollar climbed to a one-week high of 79.45 yen, putting even more distance from a 3-1/2 month trough around 77.65 set on June 1.

The British pound is slightly easier at $1.5871, ahead of the Bank of England’s policy decision at 1100 GMT.

Some market players think there could be a fresh increase in asset purchase, though a majority expects no change in policy.

| 7 mins ago