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FOREX-Euro surges on Draghi pledge to save single currency

by on July 26, 2012 3:14 pm BST
 

Thu Jul 26, 2012 11:14am EDT

* Euro rises over 1 pct against dollar, yen
    * ECB head says will do whatever needed to save euro
    * Analysts still skeptical of euro rallies


    NEW YORK, July 26 (Reuters) - The euro soared to a two-week
high against the dollar on Thursday, bolstered by a pledge from
European Central Bank chief Mario Draghi that the bank would do
whatever it takes to preserve the single currency.
    The euro was also lifted by stronger risk appetite after a
report showed 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. 
    Data showing contracts to buy previously owned U.S. homes
unexpectedly fell in June as fewer properties came on the market
failed to stem demand for risk. 
    But all eyes were on Draghi who pledged, at a conference in
London, 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.
 
    "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.
    The euro rose to a two-week high of $1.2329, using
Reuters data,  well above a session low of $1.2116 touched
earlier in the global trading day before Draghi's comments. It
was the euro's best one-day performance since June 29. 
    The euro was last up 1.1 percent at $1.2292. 
    Better investor appetite to take on risk dented the
safe-haven U.S. dollar, which fell to a two week low against the
Swiss franc and lost more than 1 percent against both the
New Zealand and Australian dollars.
    The euro also gained more than 1 percent against the
Japanese yen to 96.17 yen.
    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.
    Greece has scraped together a plan to save nearly 12 billion
euros over the next two years in an increasingly desperate
effort to convince visiting EU and IMF inspectors it deserves to
be saved rather than pushed out of the euro zone.
.
    Yet, the biggest U.S. prime money market funds reduced their
euro zone exposure to the lowest level since 2006 as fears about
Spain requiring a full-blown bailout intensified, Fitch Ratings
said in a report on Wednesday..
        
    GAINS OVERDONE
    Analysts said there was little new or of substance in recent
comments by policymakers and they expected traders to eventually
sell the euro 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
psychologically important $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, in Woodcliff Lake, 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."