Euro falls as sovereign woes persist

Date: Thursday, March 10, 2011
Author: Hideyuki Sano, Reuters FX analyst Rick Lloyd and Masayuki Kitano in Singapore

The euro fell on Thursday, with further
pullbacks seen likely, as worries about how Europe will address
its fiscal problems offset expectations of an upcoming rate hike
by the European Central Bank. 	

 The single European currency extended its losses after
Moody's downgraded Spain's rating to Aa2 from Aa1 with a
negative outlook.   	

 Technical strategists said the euro's consolidation from
Monday's four-month peak at $1.4036 is still in progress and a
deeper retreat cannot be ruled out.        	

 Investors are looking ahead to a European policy makers'
meeting on Friday and stress tests on banks planned in the
coming weeks.	

 "While stronger euro-zone data this week may be lending some
support, we believe that uncertainty heading into Friday's Euro
Area Summit is keeping the trade choppy," said Jessica Hoversen,
currency strategist at MF Global in Chicago.	

 "If officials make no progress and Germans remain unwavering
in their demands, the likelihood of a capitulation (in the euro)
will be significantly higher," she added.   	

 The euro fell 0.7 percent to $1.3818 , having
dropped to as low as $1.3804 earlier.	

 Market players expect the focus to fall on debt woes in the
coming weeks, when European leaders and finance ministers will
hold a series of meetings to deal with debt problems, starting
with the euro zone summit on Friday.	

 Few investors, however, expect a breakthrough at these
meetings. 	

 "Our view is that the financial markets will be disappointed
by the announcement due to resistance by countries like Germany
where public sentiment is strongly against further bailouts,"
said Jonathan Clark, president of FX Concepts, a currency hedge
fund in New York, with assets under management of about $8.4
billion.	

 FX Concepts, which employs systematic investment strategies,
said the cycles suggest that the euro has formed a medium-term
peak, although it could see some final strength into Friday. The
models also suggest that the euro could peak again in June when
equities are likely to hit a top.	

 AUSSIE HIT BY DATA	

 The Australian dollar fell after data showed China swung to
a surprise trade deficit in February of $7.3 billion, its
largest in seven years. 	

 The numbers stirred worries that China's growth could slow
and affect countries such as Australia, which has benefited from
China's expansion.	

 Earlier, the Australian dollar briefly tumbled after data
showed Australian employment fell 10,100 in February, well below
market expectations for a rise of 20,000. The data did show,
however, that full-time employment rose 47,600, helping limit
the impact on the Aussie. .	

 The Australian dollar fell 0.7 percent to $1.0036 ,
dipping below support near $1.0055, which is right around the
61.8 percent retracement of its rally from late February to
early March, and also near an intraday low hit on March 8.    	

 Traders said there was talk of bids for the Australian
dollar near parity and large stop-loss bids around $0.9950. 	

 Sterling fell 0.3 percent to $1.6158 ahead of a
central bank policy decision later on Thursday.	

 The Bank of England is expected to keep rates on hold on 
Thursday. Market players are bracing for the possibility of a
quarter percentage point rate hike in May.  	

The New Zealand dollar dipped 0.2 percent to $0.7354
 , having hit a five-month low of $0.7332 after the
Reserve Bank of New Zealand cut interest rates by an aggressive
50 basis points to 2.5 percent. The rate cut was expected to
ease the impact of an earthquake that hit the country last
month.     	

 The dollar inched up 0.2 percent to 82.90 yen .