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FOREX-Greece optimism drives euro higher

by on November 23, 2012 8:53 am GMT
 

Fri Nov 23, 2012 3:53am EST

* Euro rises on optimism over Greece aid deal

* Yen edges up from 7-month lows vs dollar and euro

* German IFO awaited, could weigh on euro

By Anirban Nag

LONDON, Nov 23 (Reuters) – The euro rose to a three-week
high against the dollar on Friday and was headed for its second
week of gains on optimism that Greece’s lenders were nearing an
agreement to tackle the country’s debt pile.

But the single currency’s gains could be tested by data on
German business morale due at 0900 GMT. The Ifo business
climate index, a barometer of economic health in Europe’s
largest economy, is seen slipping to 99.5 in November from 100.0
last month.

“The market is getting a bit confident that a Greek deal
will be struck. This will remove one of the near-term
uncertainties in the euro zone and some of the short euro bets
will be squeezed as a result. But I do not see the euro rising
much beyond $1.30,” RBS currency strategist Paul Robson said.

“While the short-term risks stemming from Greece wane, the
medium-term risks in the euro zone from weaker growth and missed
debt targets remain and that will see the euro struggle.”

The euro rose past reported option barriers at
$1.2900 to hit $1.2908 on trading platform EBS, up 0.2 percent
on the day. Stop-loss buy orders are cited at $1.2920.

It has gained nearly 1.5 percent against the dollar in the
past two weeks as yields on Greek bonds fell on expectations
that euro zone ministers should be able to sign off on another
tranche of aid for Greece on Monday.

The euro slipped from a seven-month high against the yen
. It eased to 106 yen, down 0.2 percent on the day, and
off its peak of 106.585 struck on Thursday.

The yen earned a respite from its steep losses made in the
past two weeks. It has been under pressure on expectations of
more aggressive monetary easing in Japan.

The dollar eased 0.3 percent to 82.17 yen, pulling
away from Thursday’s 7-1/2-month high of 82.84 yen, its
strongest level since early April.

YEN OFF LOWS

The dollar has climbed 3.4 percent against the yen in the
last two weeks, with the yen weakened by expectations that a
likely new Japanese government after an election scheduled for
December would push the Bank of Japan to implement more drastic
monetary stimulus.

Shinzo Abe, the leader of Japan’s opposition Liberal
Democratic Party, which is tipped to win the election, has
called for measures such as having the BOJ buy bonds issued
specifically to fund public works projects and pushing
short-term interest rates below zero.

His party’s policy platform calls for setting a 2 percent
inflation target, and seeks to ensure that the BOJ will pursue
it vigorously with a possible revision to legislation that
guarantees the central bank’s independence.

In an interview with the Wall Street Journal published on
Friday, Abe was also quoted as saying that he would consider
postponing sales tax increases agreed in August if the economy
remained mired in deflation.

Analysts said loose monetary measures along with lax fiscal
policies could keep the yen under pressure and could see
yen-funded carry trades return. Under these trades, investors
sell the low-interest rate yen to buy more higher-yielding
assets.

“Speculation is already growing that the yen will be the
funding currency of choice for 2013 carry trades — a view we
tend to support,” Chris Turner, head of FX strategy at ING, said
in a note.

“Expect dollar/yen corrections to prove reasonably shallow,
before we see a test of 83.20.”