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FOREX-Euro slips on profit-taking as ECB action awaited

by on July 30, 2012 8:54 am GMT
 

Mon Jul 30, 2012 4:54am EDT

* Euro pulls back from three-week high hit on Friday

* Expectations grow for ECB action

* But traders wary of the scope for disappointment

* Policy decisions due this week in euro zone, U.S., UK

By Jessica Mortimer

LONDON, July 30 (Reuters) – The euro slipped on Monday, with
traders taking profit on the gains enjoyed late last week due to
growing expectations the European Central Bank will launch fresh
action to tackle the euro zone’s debt crisis.

Some in the market speculate that the ECB may reactivate its
bond-buying programme to help cut Spanish and Italian borrowing
costs, but traders were aware Germany has repeated its
opposition to this and nervous of the scope for disappointment.

The central bank meets on Thursday. Talk of policy action
intensified after president Mario Draghi said last week the bank
would do whatever it took to save the euro, a message echoed by
German Chancellor Angela Merkel and French President Francois
Hollande.

But German Economy Minister Philipp Roesler warned the ECB
about any large-scale government bond purchases.

The euro was down 0.2 percent at $1.2287, retreating
from a three-week high of $1.2390 hit on Friday. but still
holding more than two cents above a two-year low of $1.2042 hit
last Tuesday on trading platform EBS.

“Draghi has to put some action behind his words last week
… The bias is towards disappointment and that’s what’s
creeping into markets now,” said Niels Christensen, currency
strategist at Nordea in Copenhagen.

“The value we saw last week in euro/dollar is fragile.”

Markets will keep an eye on U.S. Treasury Secretary Timothy
Geithner, who will meet German Finance Minister Wolfgang
Schaeuble and Draghi on Monday.

The U.S. Treasury said Geithner and the officials will
discuss the U.S., European and global economies.

Markets were bracing for a busy week, with central bank
decision due in the United States and UK as well as Europe, in
addition to key U.S. jobs data on Friday.

ACTION AWAITED

Before the ECB meeting, analysts said euro losses were
likely to be limited.

“Clearly, if nothing is announced that would be a massive
disappointment… But there is an expectation that we’re going
to see something meaningful on Thursday,” said Callum Henderson,
global head of FX research for Standard Chartered Bank in
Singapore.

But he said the euro’s failure on Friday to close above a
key technical level near $1.2325 was weighing on the currency.

The euro fell 0.6 percent to 96.12 yen, though it
remained above last week’s low of 94.12 yen, its lowest level
against the Japanese currency in more than 11-1/2 years.

Daisuke Karakama, market economist for Mizuho Corporate Bank
in Tokyo, said the euro might initially rise to around $1.25 and
100 yen if the ECB resumed bond purchases but said these levels
“should be seen as a golden opportunity to sell into”.

“Unless progress is made toward fiscal consolidation in
Spain, the SMP (the ECB’s bond buying programme) won’t make
everything OK,” Karakama said.

Growth-linked and higher-yielding currencies have also
gained strongly since last week on the improved willingness to
take on risk in financial markets.

The Australian dollar was down 0.1 percent at
$1.0467, having reached a four-month high around $1.0498
in early Asian trade on Monday, within a whisker of the
psychologically key $1.0500 level.

The Swedish crown also came close to a 12-year high against
the euro after data showed the Swedish economy grew much more
than expected in the second quarter.

The euro fell nearly 1 percent to 8.3845 crowns,
very close to its recent low of 8.3840.

The dollar was steady at 82.796 against a basket of major
currencies, above a 3-week low of 82.343 hit on Friday.

Against the yen, the dollar eased 0.2 percent to 78.25 yen
.