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.”
AUCTION IN SPAIN
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.
Reuters | 7 mins ago
