WSJ:WORLD FOREX: Italian Banks Rattle Traders, Help Dollar Recover
-- Dollar recovers earlier losses on worries about Italian banks
-- Greenback initially sold off as traders closed positive bets ahead of the weekend
-- Strong German Ifo helps soften the impact of week's weak global economic data
-- BOE says U.K. banks' exposure to euro-zone crisis limited
By Jessica Mead
Of DOW JONES NEWSWIRES
LONDON (Dow Jones)--The dollar rallied against other currencies in late Friday-morning trade in Europe on Italian bank credit concerns, reversing earlier losses after robust German business confidence gave investors renewed hope that a slowdown in the global economy would pass after weak data this week.
The abrupt reversal in currency trader sentiment came after trading in leading Italian bank stocks was suspended after these fell sharply.
The development followed a warning from Moody's Investors Service late Thursday that it may cut the credit ratings of 16 Italian banks. It also added to wider euro-zone debt concerns in the wake of 11th-hour efforts to stave off a default in Greece, even as hopes grew that the euro zone would muddle through following overnight news that Greece had reached an agreement with the International Monetary Fund and the European Union on a five-year austerity program.
"There are still substantial uncertainties because the new Greek packages come with additional conditionality, including another EUR5 billion in extra fiscal cuts which will be difficult to get through parliament," said Hans Redeker, head of global currency strategy at Morgan Stanley.
Earlier in the session, stronger-than-expected German business confidence data for June and rising equity markets encouraged European investors to close out positive dollar bets ahead of the weekend.
"The Ifo data was very positive, as most investors thought the index topped out last month and expected a slightly lower number," said Peter Kinsella, a currency strategist at Commerzbank in London.
Traders reported that low volumes and stop-losses being taken out amplified the dollar's earlier slide. The euro briefly climbed to just above $1.43 against the dollar while the Australian dollar touched $1.06. The yen also notched up some chunky gains against the dollar, taking out stops on its way up.
Sterling also benefited from the morning anti-dollar move, but the rally fizzled out just ahead of $1.6050.
The pound shrugged off the inaugural report from the U.K.'s new Financial Policy Committee, which indicated that U.K. banks' exposure to troubled euro-zone governments was limited but noted that there was still a risk of contagion via French and German banks.
At 1055 GMT, the euro was trading at $1.4204 against the dollar, compared with $1.4257 late Thursday in New York, according to trading system EBS. The dollar was at Y80.18 against the yen, compared with Y80.50, while the euro was at Y113.91 compared with Y114.78. Meanwhile, the pound was trading at $1.6007 against the dollar, compared with $1.6000 late Thursday in New York.
The ICE Dollar Index, which tracks the greenback against a basket of currencies, was at 75.440 compared with 75.297 late Thursday in New York.
A summary of key levels for chart-watching technical strategists is below:
Forex spot: EUR/USD USD/JPY GBP/USD USD/CHF
Spot 1024 GMT 1.4222 80.22 1.6008 0.8350
3 Day Trend Bearish Range Bearish Bearish
Weekly Trend Range Bearish Bearish Bearish
200 day ma 1.3928 82.87 1.6055 0.9286
3rd Resistance 1.4350 81.08 1.6122 0.8455
2nd Resistance 1.4330 80.80 1.6100 0.8440
1st Resistance 1.4286 80.60 1.6066 0.8388
Pivot* 1.4246 80.53 1.6006 0.8397
1st Support 1.4197 80.16 1.5953 0.8337
2nd Support 1.4164 80.04 1.5939 0.8327
3rd Support 1.4125 80.01 1.5901 0.8160
Forex spot: EUR/CHF
Spot 1023 GMT 1.1880
3 Day Trend Bearish
Weekly Trend Bearish
200 day ma 1.2899
3rd Resistance 1.2070
2nd Resistance 1.2015
1st Resistance 1.1963
Pivot* 1.1957
1st Support 1.1847
2nd Support 1.1807
3rd Support 1.1785
