WSJ:WORLD FOREX: Euro Flounders As EU Summit Fails To Deliver
By Alexandra Fletcher
Of DOW JONES NEWSWIRES
LONDON (Dow Jones)--A rally in the euro in Asian hours quickly reversed in European trade as investors continued to question how and whether the euro-zone crisis will be solved.
The euro shed almost a cent from its Asian session highs against the dollar to a session low of $1.3846, and the single currency also fell against the yen to Y105.45.
The summit on Sunday, attended by European Union leaders, yielded no firm decisions on how a response to the euro-zone crisis would take shape. Rather, leaders admitted the last plan agreed only three months ago, had failed.
A new effort will be finalized at another summit on Wednesday, which involves recapitalization of European banks, a substantial restructuring of Greece's debts, a bigger bailout fund and possibly fresh efforts to entice sovereign-wealth funds in China and elsewhere to come to Europe's aid.
"The summit provided very little detail," said Adam Myers, senior market strategist at Credit Agricole. "The two-week risk rally we've seen in the market can't last. I expect to see a correction of the rally by Wednesday as the market wakes up to the fact that the euro-zone solution is another fudge," he said.
Euro-zone data released early in the session added to market concerns that the sovereign debt crisis is affecting Germany and France, along with the more debt-hobbled member states. The purchasing manager's index showed the euro-zone's private sector contracted at a faster pace in October to 47.2--the lowest level since September 2009 from 49.1 last month.
The stumble in the euro against the dollar also dragged it lower against the yen, pushing the yen higher against the buck.
This grated nerves that Japan could launch a fresh intervention to weaken its currency, after the dollar fell to a fresh all-time low against the single currency of Y75.78 late Friday.
Japanese officials are certainly working hard to remind traders that the risk of an intervention is real. "We will take resolute action against excessive speculative movements in the currency market," finance minister Jun Azumi said Monday. He added that Friday's yen move was "an absolutely speculative movement and did not reflect economic fundamentals at all".
In emerging markets, Turkey once again upped the ante in fighting currency weakness, promising to deliver a package of measures to support the lira Wednesday.
Looking ahead, Italian prime minister Silvio Berlusconi meets with ministers at 1600 GMT to review demands from the EU that he must approve economic growth-boosting measures to flank the fiscal austerity program Italy approved last month. Israel also has an interest rate decision, and some analysts see a possible rate cut.
At 1042 GMT, the euro was trading at $1.3833 against the dollar, compared with $1.3899 late Friday in New York, according to trading system EBS. The dollar was at Y76.17 against the yen, compared with Y76.19, while the euro was at Y105.40 compared with Y105.87. Meanwhile, the pound was trading at $1.5920 against the dollar, compared with $1.5959 late Friday in New York.
The ICE Dollar Index, which tracks the greenback against a trade-weighted basket of currencies, was at 76.503 compared with 76.284 late Friday in New York.
A summary of key levels for chart-watching technical strategists is below:
