SymbolPriceChange^REURTRUSD1,563.570.00
* Hopes China will buy Italian debt briefly soothe panicky
markets
* Euro seen falling more after rebound fails to clear key
chart levels
* Risk reversals point to more euro downside versus yen
* France, Spain CPI, Italian bond auction next market focus
* Dollar broadly lower after Japanese exporters seen selling
TOKYO, Sept 13 (Reuters) – The euro held firm on Tuesday
after a choppy session overnight saw a wave of short-covering
lift it by more than two cents on hopes that China will bolster
Italy by buying its bonds, but traders found few reasons to stay
upbeat about the currency.
Mounting fears of a Greek default, a surge in Italian bond
yields and steep falls in French bank shares due to their
sovereign exposure and amid talk of a possible cuts to their
ratings kept sentiment overwhelmingly bearish.
The euro climbed to around $1.3686 against the dollar after
falling to a seven-month low of $1.3495 in the previous session,
though weak demand at an Italian bond auction later in the day
may see the single currency drop back again.
“All eyes are squarely on that seven-month low around $1.35
hit overnight,” said Koji Fukaya, director of global
foreign exchange research at Credit Suisse Securities in Tokyo.
“The downtrend in the euro will surely continue, but my
sense is that unless the Italian bond auction goes extremely
badly, this level may hold today,” he said.
Italy is offering up to 7 billion euros of long-term paper,
with the auction in focus after the previous long-term sale drew
tepid demand and as the spread of Italian bond yields over
German Bunds rose close to a peak around 400 bps hit in August.
On top of that, any weakness in inflation data from France
and Spain also out later in the day could fire up expectations
that the European Central Bank may cut interest rates.
Markets are also trying to price in a possible ratings
downgrade on France’s top banks, as well as an Italian sovereign
rating cut. Moody’s warned on June 17 that it may cut Italy’s
credit rating in the next 90 days.
Chart-wise, the euro looks heavy after a short-covering
rally stalled ahead of the top on the weekly Ichimoku cloud at
$1.3705 and the 100-week moving average at $1.3739.
“Having failed to bounce back above $1.37, the euro has
become extremely vulnerable on the charts. I wouldn’t get my
hopes up for the auction — the euro is still a sell,” said a
trader for a Japanese bank who spoke on condition of anonymity.
But the trader also said that the euro is oversold in the
short term and may find some immediate support having fallen
about nine cents, or 6 percent, in two weeks from a high of
around $1.4548 on Aug. 29.
It is now trading on the verge of the lower Bollinger Band,
at $1.3646, and its 14-day relative strength index is hovering
around the 30 mark, which is considered to be oversold
territory, for the first time in more than nine months.
KNOCK OUT
The Financial Times reported that Italy had asked China to
make “significant” purchases of Italian debt. Italy has seen its
borrowing costs spike in recent weeks on doubts about the
political will in Rome to tackle its swollen
debt.
Against the yen, the euro fell 0.1 percent to 105.40 yen
, but was off a 10-year trough plumbed on Monday at
103.90 yen.
Some traders said that the fall through 105.00 and 104.00 in
euro/yen overnight has knocked out some Japanese exporter
hedges, and that heading into the fiscal half-year end at the
end of September they may have to re-sell the common currency.
Risk reversals also showed increasing demand for bets on a
lower euro, with the 25 delta one-month euro/yen risk
reversal rising to levels not seen in over a
year, trading around 4.4 in favour of euro puts.
Market players are cautiously awaiting U.S. Treasury
Secretary Timothy Geithner’s return trip to Europe (Chicago Options: ^REURTRUSD – news) on Friday
where he will attend a meeting of EU finance ministers to
discuss efforts to boost global recovery and cooperate on
financial regulation.
The dollar came off seven-month highs against major
currencies , falling 0.7 percent to 77.07 after Japanese
exporters were detected selling it, helping lift
dollar-denominated commodities such as gold, copper and crude
oil.
Dollar/yen slipped from a one-month high set on Friday and
fell 0.3 percent to 77.02 yen . It has held in a slim
range roughly between 76.40 and 77.60 with markets wary of more
yen-weakening intervention by Japanese authorities.
The Australian dollar staged a lukewarm rebound,
bolstered by the softer dollar and rebounding Japanese equities,
but failed to pop back above the 200-day moving average at
$1.0385. It last traded at $1.0369.
(Additional reporting by Hideyuki Sano in Tokyo and Ian Chua in
Sydney; Editing by Joseph Radford)
