Home Forex Market News Euro eyes 2013 trough, dollar extends winning ways

Euro eyes 2013 trough, dollar extends winning ways

Euro breaks below $1.2800, hits 14-month lows

* Dollar index scales peak not seen in over 4 years

* ECB Draghi says to keep policy loose for as long as it takes

By Ian Chua

SYDNEY, Sept 25 (Reuters) – The euro languished near a 14-month trough early in Asia on Thursday after surrendering overnight to stop-loss selling as a major chart bulwark at $1.2800 gave way.

The common currency fell as low as $1.2774, nearing the 2013 trough of $1.2740. A break there will take it back to levels not seen since late 2012. It last traded at $1.2777.

That helped the dollar index break above 85.000 for the first time since July 2010. It peaked at 85.091 before settling at 85.084.

The greenback also pressed higher on the yen to reach 109.22 and looked set to re-test last week’s six-year peak of 109.46.

Keeping euro bears on the hunt, European Central Bank President Mario Draghi said on Wednesday the bank will keep monetary policy loose for as long as it takes to push ultra-low inflation back up towards the two percent level.

Draghi’s comments came amid growing scepticism over whether the ECB’s latest offer of cheap cash to banks in exchange for lending will even work.

The latest batch of data also highlighted the diverging economic outlook, and hence monetary policy pathways, between Europe and the United States.

German business sentiment fell again in September to its lowest level in nearly 1-1/2 years, while sales of new U.S. single-family homes surged in August to their highest level in more than six years.

“We recommend staying short EUR/USD in spot,” analysts at Barclays wrote in a note to clients, adding they have revised their 12-month euro/dollar forecast to $1.10 from $1.25.

“Our conviction in our long USD view has grown, but our revision was driven mainly by negative developments in the euro area and inflation,” they said.

Investors also bought the Australian dollar in the past 24 hours, helping lift the beaten-down currency towards 89 U.S. cents from a near eight-month low $0.8831 plumbed on Tuesday. Its dollar bloc counterparts were also bid.

Ilya Spivak, strategist at DailyFX, said the buying was encouraged by a Wall Street Journal report stating Chinese central bank Governor Zhou Xiaochuan may lose his job in a reshuffling, “that may open the door for more extensive monetary stimulus”.

However, many analysts believe a change to the central bank’s leadership would not bring about any dramatic policy easing, something that senior leaders, including Premier Li Keqiang, have already publicly ruled out.

Trading in Asia could be subdued with little in the way of market-moving economic data. Reserve Bank of Australia Governor, Glenn Stevens, will give a brief speech at an economic forum later in the day, but will not be taking any questions. (Editing by Eric Meijer)

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