* Euro takes a breather, retreats from 3-week high
* Euro zone data dismal, businesses more pessimistic
* Aussie still strong on European stimulus hopes
By Ian Chua
SYDNEY, July 31 (Reuters) – The euro consolidated recent
gains on Tuesday following a slew of negative economic news,
while high expectations that major central banks were poised to
add more stimulus helped keep risk currencies like the
Australian dollar at multi-month highs.
The euro bought $1.2260, having retreated from a
three-week peak near $1.2400. Good support is seen around
$1.2216, a level representing the 50 percent retracement of its
July 24-27 rally.
Data on Monday added to the urgency for policymakers to act
soon with economic sentiment in the euro zone falling to near a
3-year low as the bloc’s economy deepened its slump and
businesses became more pessimistic.
“There’s mounting hopes surrounding the European Central
Bank interest rate decision…and it seems as though the central
bank head will continue to embark on its non-standard measures
in an effort to stem the risk for contagion,” said David Song,
currency analyst at DailyFX.
“We may see the Governing Council lean towards a zero
interest rate policy as the region heads for a prolonged
recession, and the central bank may have little choice but to
implement a range of tools over the coming months as the outlook
for growth and inflation falter.”
Against the yen, the single currency fetched 95.82
, down from a 1-1/2 week high around 97.33 set Friday.
But on the high-flying Aussie, it plumbed a record low round
The Aussie and other high-beta currencies have been among
the best performers recently, thanks largely to expectations
that both the ECB and Federal Reserve are moving closer to
providing more aid to support their respective economies.
This will cement the status of both the euro and dollar as
funding currencies of choice for carry trades, dealers said.
The Aussie was last at $1.0501, within easy reach
of a four-month peak of $1.0508 set on Monday. It was near the
top-end of an uptrend channel drawn from early June.
Markets were also keeping an eye on the Swiss National
Bank’s FX reserve allocations due on Tuesday amid talk the
central bank has been buying the Australian dollar.
The modest pullback in the euro helped the dollar index
edge off a three-week trough of 82.343 to 82.831. Against
the yen, the greenback bought 78.15, remaining in a thin
78.00-78.60 band seen in the past week.
With the outcome of the Fed’s meeting due on Wednesday and
that of the ECB on Thursday, traders expect markets to turn
subdued as investors retreat to the sidelines to await their