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FOREX-Euro surges higher after Draghi pledge on single currency

by on July 26, 2012 1:01 pm BST
 

Thu Jul 26, 2012 9:01am EDT

* Euro rises 1 pct against dollar, yen
    * ECB head says will do whatever needed to save euro
    * Analysts say gains may be short-lived


    NEW YORK, July 26 (Reuters) - The euro soared against the
dollar and other major currencies on Thursday, reversing earlier
losses, after European Central Bank chief Mario Draghi said the
bank would do whatever it takes to preserve the single currency.
    The euro touched a fresh one-week high against the dollar
after the number of Americans filing new claims for jobless
benefits fell last week to near a four-year low, a hopeful sign
for a labor market that has shown signs of weakness and
prompting investors to increase risk exposure.  
    The euro rose 1 percent to a one-week high of
$1.2315, using Reuters data,  well above a session low of
$1.2116 touched earlier in the global trading day before
Draghi's comments. 
    Speaking at a conference in London, Draghi pledged to do
whatever was necessary to protect the euro zone from collapse,
including fighting unreasonably high government borrowing costs
for countries such as Spain and Italy. 
    But analysts were skeptical the euro's gains would be
sustained given worries about the possibility of Spain applying
for a sovereign bailout or Greece leaving the monetary union.
    "In a heavily biased market, it only takes a little bit of
news of the opposite sentiment to provoke quick moves," said
Christopher Vecchio, currency analyst at DailyFX.  "Such has
been the case in the Euro today, which has rapidly appreciated
to its weekly high against the US Dollar following constructive
commentary from European Central Bank President Mario Draghi
today."
    Better investor appetite to take on risk dented the
safe-haven U.S. dollar, which lost more than 1 percent against
the Swiss franc and New Zealand dollars and almost
as much against the higher-yielding Australian.
    The euro also gained more than 1 percent against the
Japanese yen to 96.20 yen.
    But analysts said there was little new or of substance in
recent comments by policymakers and they expected traders to
eventually sell into any rally.
    They said the past two days' gains may have been overdone
and the euro could re-test recent lows and target the
psychological $1.20 level followed by 2010's low around $1.1875.
    "The only thing that could change the downtrend in the euro
is if the Fed launched further quantitative easing or some other
additional policy measures. Otherwise it's all about what
happens in the euro zone," said Richard Falkenhall, currency
strategist at SEB in Stockholm.
    Any hints at further quantitative easing at a U.S. Federal
Reserve policy meeting next week could bolster the euro, as
asset buying by the central bank would increase the supply of
dollars in the market and weigh on the greenback.
    Speculation the Fed may adopt monetary easing steps could
grow louder if U.S. second-quarter gross domestic product data
due on Friday is weak, although most expect the central bank to
hold back for now.
    New orders for a range of long-lasting U.S. manufactured
goods fell in June and a gauge of planned business spending
plans dropped, pointing to a slowdown in factory activity, a
report showed on Thursday. 
    "The slow accumulation of negative data will eventually
force the Fed to act," said Joseph Trevisani, chief market
strategist at Worldwide Markets, Woodcliff Lake in New Jersey.
"Today's mixed durable goods orders, with the headline result
better than expected and the ex-transportation worse, does not
change the economic slide toward recession."