Wednesday, 5 September 2012

Euro Trades Near Two-Month High On ECB Bond-Buying Plan

By Mariko Ishikawa and Monami Yui - Sep 6, 2012 10:08 AM GMT+0400

The euro traded 0.2 percent from a two-month high against the dollar on prospects theEuropean Central Bank will today announce unlimited, sterilized bond buying to stem the region’s debt woes.
Sterilization involves draining money from other parts of the financial system to offset new funds added. The 17-nation euro maintained gains from yesterday against the yen after two central bank officials said ECB President Mario Draghi favors such a plan. The Australian dollar rallied from near a seven- week low after data showed unemployment unexpectedly fell.
Australia’s jobless rate probably rose to 5.3 percent from 5.2 percent in July, according to the median estimate of economists surveyed by Bloomberg News before the statistics bureau releases data today. Photographer: Brendon Thorne/Bloomberg
“The market is pleased by the fact that we have some details and that the ECB is going to follow through with what was hoped that they would do,” said Emma Lawson, a Sydney-based currency strategist at National Australia Bank Ltd., referring to the central bank’s bond-purchase program. “The euro can at least remain around current levels and possibly be a little bit supported into the ECB meeting.”
The euro fetched $1.2612 as of 7:01 a.m. in London from yesterday, when it gained 0.3 percent. It reached $1.2638 on Aug. 31, the strongest since July 2. The shared currency climbed 0.1 percent to 98.91 yen. The yen was little changed at 78.42 per dollar.
Under the ECB blueprint, which may be called “Monetary Outright Transactions,” the ECB would refrain from setting a public cap on yields, according to the central bankers, and a third official, who spoke on condition of anonymity. The plan will only focus on government bonds rather than a broader range of assets and will target maturities of up to about three years, two of the people said.

Draghi Speaks

Draghi is due to speak at a press conference after the ECB’s Governing Council meeting inFrankfurt.
German Chancellor Angela Merkel told lawmakers yesterday she can accept temporary ECB bond buying, according to a member of her party. German legislator Norbert Barthle said in Berlin that Merkel spoke in a closed-door meeting of Christian Democratic Union lawmakers.Germany’s Constitutional Court is set to rule on Sept. 12 on the legality of the European Stability Mechanism, the euro region’s permanent bailout fund.
“Should the ECB deliver on what has been leaked about the bond-purchase program, the euro may rise higher,” said Kengo Suzuki, a currency strategist at Mizuho Securities Co. in Tokyo. “The euro will remain solid on heightened expectations.”

Euro Gains

The shared currency has strengthened 0.8 percent in the past week, the biggest gainer among the 10 developed-nation peers tracked by Bloomberg Correlation-Weighted Indexes. The yen rose 0.1 percent in the same period, while the dollar slid 0.2 percent.
The euro may advance to a two-month high against its Japanese counterpart, according to IG Markets Securities Ltd., citing trading patterns.
The common currency may strengthen to 99.86 yen, the 76.4 percent retracement on a Fibonacci chart of its decline from the June 21 high to the July 24 low, should it rise above 99 yen, a key resistance level, Junichi Ishikawa, a Tokyo-based analyst at IG Markets, wrote in a note to clients today. That would be the highest since July 5, according to data compiled by Bloomberg. Resistance refers to an area on a chart where sell orders may be clustered.
The jobless rate in Australia fell to 5.1 percent in August from 5.2 percent the previous month, the statistics bureau said in Sydney today. The median estimate of economists was for an increase of 5.3 percent.

Aussie Rally

The so-called Aussie dollar rose 0.3 percent to $1.0228 from yesterday, when it reached $1.0167, the weakest since July 13. It rallied 0.4 percent to 80.21 yen after earlier falling as much as 0.2 percent.
The jobs report “certainly doesn’t justify further near- term easing” by the Reserve Bank of Australia, Annette Beacher, head of Asia-Pacific research at TD Securities in Singapore, wrote in a note today. The Aussie “squeezed higher” on the news. “We suspect this report will be swiftly forgotten with all eyes on the ECB.”
The Dollar Index (DXY), which IntercontinentalExchange Inc. uses to track the greenback against those of six U.S. trading partners, slid before reports which may show the labor market remained weak, adding to the case for further monetary stimulus by the Federal Reserve. The index lost 0.1 percent to 81.177.

Jobs Data

U.S. corporate employment may have risen by 140,000 in August, the least since May, according to the median estimate of economists surveyed by Bloomberg before ADP Employer Services announces the data today. Economists estimate a Labor Department report tomorrow will show payrolls increased by 127,000 last month from July when they added 163,000.
The policy-setting Federal Open Market Committee meets on Sept. 12-13.
“If U.S. data is very weak, then the market will be anticipating a much greater economic package, more policy accommodation by the Fed,” said NAB’s Lawson. “It would be interesting to see market reaction on a soft number to see just how much faith the market has in the ability of the Fed to provide more policy accommodation.”
-- With reporting by Kazumi Miura in Tokyo. Editors: Naoto Hosoda, Jonathan Annells
To contact the reporters on this story: Mariko Ishikawa in Tokyo at mishikawa9@bloomberg.netMonami Yui in Tokyo at;
To contact the editor responsible for this story: Rocky Swift at