BLBG:Euro Falls Before Italy, Spain Debt Auctions, EU Summit
The euro fell against the dollar and the yen before Italy and Spain sell debt tomorrow amid concern Europe’s fiscal crisis is infecting bigger economies.
The 17-nation currency extended last week’s 0.6 percent decline as billionaire investor George Soros warned the euro may dissolve if European Union leaders fail to tame the region’s debt turmoil at a June 28-29 summit. The yen strengthened on demand for haven assets after earlier weakening against the dollar on speculation a plan to double Japan’s sales tax will widen divisions in the nation’s ruling party.
“I would not rule out the euro falling further in the near term,” said Michael Derks, chief strategist at FxPro Group Ltd. in London. “I would not hold out a great deal of hope that this particular summit is really going to produce drastic measures or the big solution.”
The euro lost 0.6 percent to $1.2490 at 8:55 a.m. London time, the lowest since June 13. It slid 1.1 percent to 100.03 yen. The Japanese currency rose 0.5 percent to 80.07 per dollar after depreciating to 80.62, the weakest since April 27.
Europe’s common currency has fallen 3.6 percent against the dollar this year. The yen has decreased 4.1 percent versus the greenback and retreated 0.4 percent against the euro.
The MSCI World Index of shares slid 0.2 percent today, boosting demand for haven currencies such as the dollar and yen.
EU Summit
Italy is scheduled to sell inflation-linked securities maturing in 2016 and 2026 tomorrow as well as 3 billion euros of zero-coupon notes. Spain will offer three- and six-month bills the same day.
France and Italy are urging Germany to take decisive action to end the debt crisis, now in its third year, after Spain’s 10- year bond yields jumped to more than 7 percent last week.
The summit in Brussels starting June 28 is the first meeting of European leaders since Greek parliamentary elections on June 17. New Democracy leader Antonis Samaras won on his pledge to seek relief from austerity measures imposed on the country while keeping the bailout funds flowing. The Greek prime minister won’t attend the meeting on the advice of his doctors after undergoing surgery to repair a detached retina.
“There is a disagreement on the fiscal side,” Soros said yesterday in an interview with Bloomberg Television. “Unless that is resolved in the next three days, then I am afraid the summit could turn out to be a fiasco. That could actually be fatal.”
Risk Reversal
The euro will probably drop to $1.20 by year-end as Europe’s debt crisis worsens before it improves, according to State Street Corp. (STT), which oversees $16.9 trillion in custody assets. Investors should sell the 17-nation euro and buy the U.S. dollar, said Collin Crownover, head of State Street’s currency management in Boston, Massachusetts. The greenback will strengthen because the prospect of further asset purchases by the Federal Reserve is less likely than market pricing indicates, he said.
“You need events to get bad enough that you can sell the population on the necessity of a bigger bang solution to the euro-zone crisis,” Crownover said today in an interview in Sydney. “We’re advising our investors to reduce their currency exposure to the euro.”
Bearish Bets
Options traders have cut bearish bets on the euro. The currency’s one-month risk-reversal rate climbed to minus 1.29 percentage points on June 21, the highest since May 1, and was at minus 1.38 percent today. The advance in the rate signals a relative decrease in the demand for put options, which grant traders the right to sell the euro versus the dollar.
“It’s still too expensive for both Greece and its fellow EU members for Greece’s exit at the moment,” David Forrester, senior vice-president for Group-of-10 foreign-exchange strategy at Macquarie Bank Ltd. in Singapore, said in an interview with Bloomberg Television. “We think that rational heads will prevail and that all parties will come to keep Greece in the euro at least for the coming six months, and that should be good news for the euro.”
Prime Minister Yoshihiko Noda’s Democratic Party of Japan is struggling to overcome internal resistance to his bill to double Japan’s sales tax. The lower house of parliament will vote on the consumption tax-bill tomorrow, DPJ lawmaker Koichi Takemasa told reporters today.
A split in the DPJ amid the tax vote “could lead to the government falling, pushing up dollar-yen further,” Mansoor Mohi-uddin, head of foreign-exchange strategy in Singapore at UBS AG, wrote in an e-mailed note on June 23.
The euro may weaken further against Japan’s currency after the common currency failed to rise above 101.65 yen last week. That’s the 38.2 percent retracement of its decline from the March 21 high to its June 1 low on the Fibonacci chart, according to Credit Suisse Group AG analysts.
Fibonacci analysis is based on the theory that prices rise or fall by certain percentages after reaching a new high or low.
“We stress that a break down through here would set a more bearish tone for the 95.59 low,” the analysts, including David Sneddon, London-based head of technical-analysis research, wrote in a note on June 22. The euro dropped to 95.60 on June 1, a level unseen since November 2000.
To contact the reporter on this story: Anchalee Worrachate in London at aworrachate@bloomberg.net; Masaki Kondo in Singapore at mkondo3@bloomberg.net;
To contact the editor responsible for this story: Rocky Swift at rswift5@bloomberg.net
