EURUSD Falls Three-Week Low on ECB Speculation

by on January 7, 2013 1:31 pm GMT

The euro declined toward a three-week low against the dollar amid speculation the European Central Bank will signal it is open to cutting its benchmark rate when policy makers meet this week.

The euro dropped 0.2 percent to $1.3041 at 11:01 a.m. London time after falling to $1.2998 on Jan. 4, the lowest level since Dec. 12. The single currency fell 0.5 percent to 114.63 yen. Japan’s currency strengthened 0.3 percent to 87.90 per dollar after depreciating to 88.41 on Jan. 4, the weakest since July 15, 2010.

‘Moving Closer’

Citigroup Inc. forecasts the ECB will cut rates as soon as February. “Signals by President Draghi that the Governing Council may be moving closer to lowering rates could add to the cyclical headwinds” for the euro, London-based currency strategists Valentin Marinov and Josh O’Byrne, wrote today in a note to clients.

Producer prices in the euro region rose 2.1 percent in November from a year earlier, after a 2.6 percent increase in October, the European Union’s statistics office in Luxembourg said. Economists forecast an increase of 2.4 percent, a Bloomberg News survey showed.

Futures traders reversed bets the euro will decline against the dollar last week, wagering for the first time since August 2011 that the shared currency will appreciate, according to figures from the Commodity Futures Trading Commission.

The difference in the number of wagers by hedge funds and other large speculators on an advance in the euro compared with those on a drop was 5,126 on Jan. 1, compared with a net 2,549 bets it would decline a week earlier. The figures reflect holdings in currency-futures contracts at the Chicago Mercantile Exchange as of Jan. 1.

Euro’s Advance

The euro has strengthened 0.7 percent in the past month, according to Bloomberg Correlation-Weighted Indexes, which track 10 developed-nation currencies. The dollar dropped 0.3 percent, while the yen tumbled 7.1 percent.

The yen rallied after falling against the dollar for eight consecutive weeks amid speculation Japan’s newly elected Prime Minister Shinzo Abe will boost efforts to spur growth.

The government will announce 12 trillion yen of fiscal stimulus this month to boost the nation’s shrinking economy, the Yomiuri newspaper said today. The extra budget for this fiscal year through March will include 5 trillion yen to 6 trillion yen of public-works spending, the newspaper reported, without saying where it obtained its information.

“The yen looks oversold,” said Lee Hardman, a currency strategist at Bank of Tokyo-Mitsubishi UFJ Ltd. in London. “Still, we think the trend is still very strongly for a weaker yen and this is a breather. Policy actions could reinforce yen selling.”

The yen’s 14-day relative strength index versus the dollar dropped to 15.5 on Jan. 4, below the level of 30 that some traders view as a signal an asset has fallen too fast. The index was at 19.4 today.

Pivot Woodie Fibonacci
Resistance 3 1.3197 1.3205 1.3143
Resistance 2 1.3143 1.3147 1.3108
Resistance 1 1.3105 1.3113 1.3086
Pivot 1.3051 1.3055 1.3051
Support 1 1.3013 1.3021 1.3016
Support 2 1.2959 1.2963 1.2994
Support 3 1.2921 1.2929 1.2959