WSJ:WORLD FOREX: Euro Pauses For Breath Ahead of Busy Week
-- Dramatic euro rally fades as busy week of data, Draghi debut loom
-- Doubts remain over euro-zone plan, but traders reluctant to bet aggressively
-- Weak data briefly knocks Swiss franc
By Alexandra Fletcher
Of DOW JONES NEWSWIRES
LONDON (Dow Jones)--Currency markets mostly paused for breath in European trading Friday as investors took stock of the previous day's dramatic euro-driven surge in risky currencies after euro-zone leaders finally cobbled together a broad plan of action to tackle the region's mounting debt problems.
The euro gently drifted lower against the dollar, having rallied to as high as $1.4248 on Thursday from Wednesday's low of $1.3798.
Deep doubts remain over the details and implementation of the long-awaited agreement to continue bailing out Greece, boost the European Financial Stability Facility's capacity to stop the crisis spreading to Italy and Spain and recapitalize the region's banks. This was reflected in the currency options market, where there is still significantly more demand for long-dated downside protection against the euro than there is for betting on continued gains in the single currency.
Traders were wary of being caught out by more dramatic moves in the market, so there was a marked reluctance to play the market aggressively in either direction. A busy schedule of economic data and central bank policy statements also lies ahead next week, including Mario Draghi's debut as president of the European Central Bank.
"The focus will be on how dovish he is. An adjustment to interest rates and policy easing is likely in light of recent weak euro-zone economic data," said Ian Stannard, senior currency strategist at Morgan Stanley, who said the euro could struggle to make more gains as a result.
An Italian bond auction with relatively high yields and insipid demand underlined just how elevated borrowing costs remain in the euro-zone periphery, while European stocks gave up early gains.
"Markets rallied strongly in response to the European developments," said Marc Chandler, global head of currency strategy at Brown Brothers Harriman. "Yet it is an exaggeration to think that risk appetites returned as the whole month of October has seen equities, emerging markets, commodities and foreign currencies trend higher, recovering from their neck-breaking, wealth-destroying plunge in September," he said.
The euro briefly touched a high of CHF1.2245 against the Swiss franc after data from the Swiss Institute for Business Cycle Research or KOF, dropped for a sixth straight month in a row.
Looking ahead, the Thomson Reuters/University of Michigan survey for consumers for October is due for release at 1355 GMT. Analysts predict the data to be weaker despite stronger U.S. GDP data.
At 1052 GMT, the euro was trading at $1.4149 against the dollar, compared with $1.4189 late Thursday in New York, according to trading system EBS. The dollar was at Y75.82 against the yen, compared with Y75.94, while the euro was at Y107.315 compared with Y107.70. Meanwhile, the pound was trading at $1.6101 against the dollar, compared with $1.6083 late Thursday in New York.
The ICE Dollar Index, which tracks the greenback against a trade-weighted basket of currencies, was at 75.090 compared with 74.955 late Thursday in New York.
A summary of key levels for chart-watching technical strategists is below:
