Monday, December 10, 2012

Euro Near 2-Week Low After Italy’s Monti Says He May Quit


The euro fell toward its lowest level in two weeks after Italy’s prime minister said he intends to resign, rekindling concern that a change in government will upend efforts to rein in debt.
The euro slid versus most of its 16 major counterparts before a Dec. 13-14 summit of European Union leaders to debate a road map to overhaul the currency bloc. Demand for the greenback was limited amid speculation the Federal Reserve may announce this week additional bond purchases. The Australian dollar fell after China reported weaker-than-expected trade figures.
 Euro Falls Toward 2-Week Low After Monti Says He Plans to Resign
The euro fell 0.1 percent to $1.2913 as of 6:41 a.m. in London. Photographer: Kiyoshi Ota/Bloomberg
Currency Strategists Disagree on Euro, Yen Outlook
Dec. 10 (Bloomberg) -- Steven Saywell, global head of foreign-exchange strategy at BNP Paribas SA, and Nick Beecroft, chairman of Saxo Capital Markets U.K. Ltd., discuss the prospects for the euro, yen, Swiss franc and pound in 2013. They talk with Mark Barton on Bloomberg Television's "Countdown." (Source: Bloomberg)
 Italy's Prime Minister Monti
Mario Monti, Italy's prime minister. Photographer: Alessia Pierdomenico/Bloomberg
“In the near term at least, it does look like the euro wants to go lower,” said Imre Speizer, a strategist in Auckland at Westpac Banking Corp. (WBC) The report that Italy’s Mario Monti may quit “impacts the euro because it’s evidence of more political instability within the zone.”
The euro fell 0.1 percent to $1.2913 as of 6:41 a.m. in London after touching $1.2877 on Dec. 7, the weakest since Nov. 23. It slid 0.2 percent to 106.44 yen. The dollar bought 82.43 yen, 0.1 percent below the close last week, when it reached as high as 82.83, the strongest since Nov. 22.
Monti will try to corral his coalition, which includes his predecessor Silvio Berlusconi’s People of Liberty Party, for a vote to pass budget legislation before handing in his “irrevocable resignation,” national President Giorgio Napolitano’s office said in an e-mailed statement on Dec. 8.
The prime minister will quit immediately if his allies won’t comply, Monti’s spokeswoman, Elisabetta Olivi, said in a telephone interview.

Italian Yields

Italian 10-year bond yields rose 10 basis points, or 0.1 percentage point, in three days to 4.53 percent on Dec. 7. The yield is still almost 2.5 percentage points below its closing level of 7 percent on Nov. 16, 2011, when Monti was named prime minister.
Monti, 69, has been weakened as his tax increases push Italy deeper into recession. Berlusconi announced on Dec. 8 that he will seek the premiership in next year’s election and criticized Monti for running a “German-centric” program.
“Combined with the region’s economic prospects, the growing political risk in Italy may be a double whammy for the euro,” said Junichi Ishikawa, an analyst at IG Markets Securities Ltd. in Tokyo.
The euro fell 0.9 percent in the past week, according to Bloomberg Correlation-Weighted Indexes, which track 10 developed-nation currencies. The greenback rose 0.3 percent, while the yen was little changed.

More Purchases

In the U.S., the Federal Open Market Committee meets for the final time this year on Dec. 11-12. It will consider whether to expand purchases of assets after its so-called Operation Twist program of swapping $45 billion a month in short-term Treasuries for long-term debt expires this month.
“There is a good chance that the Fed will announce a new round of money printing and bond buying,” said Westpac’s Speizer.
Expectations of more central bank stimulus come as data released Dec. 7 by the Labor Department showed the unemployment rate in the world’s biggest economy dropped to 7.7 percent, the lowest level since December 2008.
Economists polled by Bloomberg News say U.S. retail sales probably rose 0.5 percent in November from the previous month, when they declined 0.3 percent. The Commerce Department will publish the figures on Dec. 13.
The central bank has already pumped $2.3 trillion into the financial system through two rounds of quantitative easing, known as QE, to stimulate the economy. In September, the Fed also announced a plan to buy $40 billion of mortgage-backed debt each month.

Chinese Exports

Australia’s currency weakened after data from China’s customs administration showed that exports rose 2.9 percent in November from a year earlier while imports were unchanged. Both trailed the median analyst estimates in a Bloomberg survey.
The Australian dollar slid 0.1 percent to $1.0482. It touched $1.0516 on Dec. 6, the highest since Sept. 21.
In Japan, gross domestic product shrank an annualized 3.5 percent in the three months ended Sept. 30, revised data from the Cabinet Office showed in Tokyo today, matching preliminary figures from November. The median estimate of economists surveyed by Bloomberg was for a 3.3 percent drop.
Futures traders increased bets that the yen will weaken against the dollar to the most since July 2007, figures from the Washington-based Commodity Futures Trading Commission show.
The difference in the number of wagers by hedge funds and other large speculators on a decline in the yen compared with those on a gain -- so-called net shorts -- was 90,326 on Dec. 4, compared with net shorts of 79,466 a week earlier.
“Extreme short market positioning will likely limit the ability of the currency pair to push higher,” Mitul Kotecha, Hong Kong-based head of currency strategy at Credit Agricole SA (ACA), wrote in a note to clients today in reference to the dollar-yen cross. “On the topside, 83.15 will market strong resistance for the currency pair,” he wrote, noting a level last seen on April 2. Resistance is an area on a chart where orders to sell may be clustered.

Source: Bloomberg

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