FOREX-Euro climbs from 4-month low but crisis remains
* Euro lifts off four-month low vs dollar, eyes 2012 low
* Broad demand for safe havens supports dollar and yen
* Greek politics, Spanish bank problems weigh on sentiment
(Adds details, updates prices, adds quotes, changes dateline,
previous LONDON)
NEW YORK (Frankfurt: A0DKRK – news) , May 18 (Reuters) – The euro lifted off a
four-month low against the dollar o n Friday as investors pared
bets against the single currency after a 4 percent drop this
month, but ongoing concerns about Greece and instability in the
Spanish banking system were likely to keep it under pressure.
Investors preferred the relative safety of the U.S. dollar
and the Japanese yen and were reluctant to increase risk
exposure after Moody’s cut the credit ratings of 16 Spanish
banks on Th ursday.
With no U.S. data likely to drive foreign exchange markets,
investors are most likely to consolidate positions ahead of the
weekend after days of euro losses.
“The biggest risk today is position squaring into the
weekend; however there appears to be increasing evidence that
the euro is likely to move lower in the days ahead,” said
Camilla Sutton, chief currency strategist at Scotia Capital in
Toronto.
The euro tumbled to $1.2640, not far from its trough
of 2012, before recovering to trade 0.2 percent higher at
$1.2724.
Some traders said the euro’s recent decline could slow,
given investors may be wary of holding positions over the
weekend when leaders of the G8 major industrial economies meet.
The euro, down 4 percent against the dollar this month to
date, was on track for its third straight week of losses, using
Reuters data. The 14-day exponential relative strength index
posted at 15.18, leaving the euro in oversold territory since
May 7.
The euro fell to 100.17 yen, its lowest since
early February, before recovering.
Strong demand for the greenback helped the dollar index
to a four-month high.
Strategists said the euro would remain vulnerable to further
bad news out of the euro zone, and looked set to test the 2012
trough. A break below there would take the euro to its weakest
level versus the dollar since August 2010.
“If it’s not Greece, it’s Spain that we talk about to sell
the euro. People are looking for bad news and they are concerned
there appears to be no solution,” said Lutz Karpowitz, currency
analyst at Commerzbank (Other OTC: CRZBF.PK – news) in London.
Greece faces fresh elections on June 17, with many investors
increasingly concerned a victory for anti-bailout parties could
lead to Greece exiting the euro zone.
A recent poll showed Greece’s conservatives have overtaken
the anti-bailout leftist SYRIZA in popularity, although the
volatile political mood meant most analysts saw the outcome of
the elections as a significant risk.
Worries about Spain’s banks and prospects of more state
bailouts for lenders kept the country’s borrowing costs high.
POLICY RESPONSE
Talk of a ban on naked short-selling of Spanish banking
stocks lifted Europe (Chicago Options: ^REURUSD – news) ‘s bank shares and this brought some
respite to the euro, but the common currency’s medium-term
prospects remained bearish.
Reflecting that, one-month euro/dollar implied volatility
climbed to around 11.55 percent while three-month risk
reversals – a measure of relative demand for bets on the euro
rising or falling – were at -3.45 vols on trading platform GFI
in favour of more euro weakness.
“A lot of bad news is already priced in by now – it depends
what happens in Greece and, of Spain, whether there will be a
further decline in bank deposits – if that would happen then you
would expect euro/dollar to go down,” said Jaco Rouw, fund
manager at ING Investment Management in London.
No economic policy decisions are expected from the G8 but
officials said U.S. President Barack Obama hoped to promote
discussion on steps to resolve the euro zone
crisis.
The dollar was flat against the yen at 79.35 yen and
well above a three-month low of 79.12 touched on Thursday,
according to Reuters data. Traders cited stop losses orders
below 79.00 yen and 78.80 yen, while offers were likely to cap
dollar gains around 79.50.
(Reporting By Nick Olivari)



