FOREX-Greece optimism, German data push euro higher

by on November 23, 2012 10:21 am BST

Fri Nov 23, 2012 5:21am 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, heading for its second week
of gains on optimism that Greece’s lenders were nearing an
agreement that will release aid.

The single currency extended gains after an influential
German business sentiment confounded expectations to show a rise
in November. The Ifo business climate index, a barometer
of economic health in Europe’s largest economy, rose to 101.4
from 100.0 last month and beating forecasts of a drop to 99.5.

But the medium term economic outlook for the region remains
bleak, keeping alive risks of further policy easing by the
European Central Bank which weigh on the euro.

“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 hit a fresh three-week high of 1.2913 from
$1.2880 before the German IFO survey was released and breaking
through resistance level of $1.2910, its 55-day moving average.

“The IFO was a bit of surprise, but these are levels which
we saw back in October and not really a turn in sentiment,”
Stuart Frost, fund manager at RWC Partners. “We expect the
euro’s gains to fizzle out.”

Traders reported steady selling of euros by Asian central
banks at higher levels with stop-loss buy orders for euros cited
at $1.2920.

The euro 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.

There were signs on Friday that lenders were inching toward
a compromise on the key issue of how to cut Greece’s debt pile
further than previous estimates.

The single currency, however, slipped from a seven-month
high against the yen on steady selling by a large U.S.
bank. It eased to 106.10 yen, down 0.1 percent on the day, and
off its peak of 106.585 struck on Thursday.

That was some respite for the yen from steep losses in the
past two weeks due to expectations of more aggressive monetary
easing in Japan. The dollar also eased 0.2 percent to 82.25 yen
, pulling away from Thursday’s high of 82.84 yen, its
strongest level since early April.


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 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

“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.”