Bloomberg News

Euro at Decade Low Versus Yen as Ministers Disagree on Fund

October 03, 2011

Oct. 3 (Bloomberg) -- The euro fell to more than a decade low against the yen as European finance ministers clashed about expanding the capacity of the European Financial Stability Facility.

The 17-nation currency slid to an eight-month low against the dollar as incoming European Central Bank President Mario Draghi said a lack of confidence may be among the reasons for lenders’ “funding problems.” The yen rose against all its major counterparts as Japan’s biggest manufacturers remained below levels seen before a record earthquake in March. The U.S. dollar was the best performer after the yen as the Standard & Poor’s 500 Index fell below its closing low for the year.

“The persistent debate within the European Union really undermines the possibility of some sort of concrete progress made on increasing the bailout funds for the region and preventing contagion,” said Kathy Lien, director of currency research, with online currency trader GFT Forex, in New York. “The move you’re seeing in the euro is a reflection of investors disappointment over lack of progress.”

The euro decreased 2.1 percent to 100.98 yen, at 5:02 p.m. in New York, from 103.12. It reached 100.96, the weakest since June 2001. The euro depreciated 1.6 percent to $1.3184, from $1.3387 on Sept. 30, after declining to $1.3175, its lowest level since Jan. 13.

The dollar slid 0.6 percent to 76.63 yen.

Death Cross

A so-called death-cross pattern is looming as the pair’s 50-day moving average drops toward its 200-day moving average, according to data compiled by Bloomberg.

“A cross for technical momentum is another signal for potential downside risks,” said Mark McCormick, a New York- based currency strategist at Brown Brothers Harriman & Co. “We could see the euro down in the $1.28 area by year-end.”

Should the shorter-term moving average fall below the longer-dated one, the euro’s depreciation may persist to $1.30, said Taso Anastasiou, a foreign-exchange technical strategist at UBS in Zurich.

The seven-day relative strength index for the euro fell to 25.8, staying below the 30 level for the second consecutive day. A reading below 30 indicates an asset’s price may have fallen too fast and may be due for a rebound.

The difference in the number of wagers by hedge funds and other large speculators on a drop in the euro versus those on a gain -- so-called net shorts -- climbed to 82,473 in the week ended Sept. 30. That’s up from 79,460 a week earlier, statistics from the Washington-based Commodity Futures Trading Commission showed Sept. 30.

Traders that expect the dollar to strengthen against the euro, yen, pound, Swiss franc and Mexican peso, as well as the Australian, Canadian and New Zealand dollars, surged to 128,155 contracts on Sept. 27, the most since June 2010, according to CFTC data as compiled by Bloomberg.

EU Moves

European finance ministers meet today in Luxembourg before the European Central Bank meets on Oct. 6.

Luxembourg Finance Minister Luc Frieden said the capacity of the EFSF is “sufficient” while speaking to reporters today in Luxembourg. Spanish Finance Minister Elena Salgado said that the facility needs more capacity. German Finance Minister Wolfgang Schaeuble said euro area countries should wait until changes to the EFSF are ratified before discussing an increase to its capacity.

“The market is in a wait-and-see mode, waiting to hear from European finance ministers so we will still have a headline driven market,” said Brian Dolan, chief strategist at FOREX.com, a unit of online currency trading firm Gain Capital in Bedminster, New Jersey. “This is a sell on rallies for the euro; it’s a hard case to make to buy it.”

Today was the original target date for approving an 8 billion-euro ($10.7 billion) loan payment to Greece, the sixth installment of the 110 billion-euro lifeline assembled in May 2010. That decision was pushed back until mid-October as Greek Prime Minister George Papandreou tries to close a deficit gap.

Yen Gains

The yen climbed against the dollar after the Bank of Japan said today its quarterly Tankan index of sentiment increased to 2 in September from minus 9 in June. The reading was below the reading of 6 in March, encouraging investors to take refuge in Japan’s currency.

The Dollar Index, which IntercontinentalExchange Inc. uses to track the greenback against the currencies of six major U.S. trading partners, gained 1 percent to 79.619, touching the highest level since Jan. 13. The gauge is weighted 57.6 percent to movements in the euro.

The Standard & Poor’s 500 Index fell 2.9 percent, trading below the close of 1,119.46 on Aug. 8. Yields on Treasury 30- year bonds fell 19 basis points, or 0.19 percentage point to 2.73.

The pound fell against all its major counterparts excluding the South Korean won as traders judged a surprise increase in U.K. manufacturing as insufficient to keep the Bank of England from providing further stimulus for the economy.

Bank of England policy makers said in minutes of last month’s policy meeting on Sept. 8 that it is becoming “increasingly probable” that another round of government-bond purchases may be needed to boost the economy.

The pound declined 1 percent to $1.5432, from $1.5584.

--With assistance from Garth Theunissen, Anabela Reis in London, Jeff Black in Frankfurt and Klaus Wille in Zurich. Editors: Paul Cox, Dave Liedtka

To contact the reporters on this story: Allison Bennett in New York at abennett23@bloomberg.net; Keith Jenkins in London at kjenkins3@bloomberg.net

To contact the editor responsible for this story: Dave Liedtka at dliedtka@bloomberg.net


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