BLBG:Euro Poised For Weekly Drop Before GDP Report; Dollar Advances
The euro headed for its first five- day drop in three weeks before data forecast to show the region’s economy shrank as its debt crisis remained unresolved.
The dollar and yen rose against their major counterparts as signs of slowing growth in China sent shares lower, boosting demand for refuge currencies. Australia’s dollar slid from a four-month high. Option premiums for the euro against the dollar, measured by implied volatility, touched a four-year low this week, prompting Citigroup Inc. to recommend buying protection against risks related to the 17-nation currency.
“I can’t see any reason to buy the euro,” said Daisuke Karakama, a market economist in Tokyo at Mizuho Corporate Bank Ltd., a unit of Japan’s third-largest banking group by market value. “The euro region’s economy has almost no upside.”
The euro fell 0.1 percent to $1.2295 and 96.62 yen as of 1:23 p.m. in Tokyo from the close in New York yesterday. It has slid 0.7 percent this week against the greenback and 0.6 percent versus the Japanese currency. The dollar fetched 78.58 yen after advancing 0.2 percent yesterday to 78.57. It has risen 0.1 percent since Aug. 3.
Gross domestic product in the euro area probably contracted 0.2 percent in the three months through June after being unchanged in the first quarter, according to the median forecast of economists in a Bloomberg News survey. The European Union’s statistics office will report the figure on Aug. 14.
Economists polled by the ECB reduced their 2013 growth projection to 0.6 percent from 1 percent, according to the central bank’s monthly bulletin released yesterday. The region’s economy is likely to shrink 0.3 percent this year. Growth has slowed as a sovereign-debt crisis prompted five of the trading bloc’s 17 states to seek international bailouts.
French industrial production may have risen 0.1 percent in June from May, when it dropped 1.9 percent, a separate survey of economists showed before the data are released today.
Implied Volatility
Six-month implied volatility for the euro against the dollar touched 10.1 percent on Aug. 6, the least since August 2008. Historical volatility was 9.13 percent today, nine basis points from a four-year low reached in May.
The recent decline in “risk premia provides a very good opportunity to hedge tail risk, especially for corporates whose profitability will very likely be damaged if the downside risks manifest themselves,” Steven Englander and Josh Obyrne, strategists at Citigroup, wrote in a research note yesterday.
U.S. Economy
In the U.S., retail sales are estimated to have increased 0.3 percent last month, the biggest gain since March. The Commerce Department reports the figure on Aug. 14. The Federal Reserve bought $2.3 trillion of mortgage and Treasury debt from 2008 to 2011 in two rounds of so-called quantitative easing to stimulate the economy through low borrowing costs.
“We’re not a big buyer of the argument that the Fed will actually deliver” on another round of QE, said Gavin Stacey, chief rate strategist in Sydney at Barclays Plc.
Singapore’s dollar was set for the first weekly decline in a month as the city state said gross domestic product shrank an annualized 0.7 percent in the second quarter. That compares with a July preliminary estimate of a 1.1 percent contraction and the 0.5 percent gain estimated by economists.
Singapore’s dollar slid 0.1 percent to S$1.2465 per U.S. currency. It has lost 0.4 percent since Aug. 3.
New Zealand’s currency may slide to a two-week low against the Canadian dollar after falling yesterday below the uptrend line that connects the lows on May 23 and July 25, according to JPMorgan Chase & Co.
China Trade
“The impulsive bias and break of the key uptrend line from the May low is consistent with the bearish bias,” Niall O’Connor, a New York-based technical analyst at JPMorgan, wrote in a research note yesterday. The 200-day moving average of 80.47 is the first support, and a further decline below that level may bring the New Zealand dollar to the July 25 low of 79.86, according to the analyst.
The so-called kiwi declined 0.1 percent 80.41 Canadian cents today.
Australia’s dollar declined against all 16 major peers as regional shares extended declines after data showed China’s exports grew less than economists estimated.
China’s overseas sales increased 1 percent in July from a year earlier, following an 11.3 percent increase in June, the customs bureau said in a statement today in Beijing. That compared with the median estimate of economists for an 8 percent gain.
The so-called Aussie dropped 0.5 percent to $1.0527 and 82.73 yen. The MSCI Asia Pacific Index slid 0.7 percent.
“If China is not doing well and not as well as it’s done in the past, the rest of the region has to suffer,” Dariusz Kowalczyk, a Hong Kong-based strategist at Credit Agricole CIB, said in an interview with Bloomberg Television.
To contact the reporters on this story: Masaki Kondo in Singapore at mkondo3@bloomberg.net; Mariko Ishikawa in Tokyo at mishikawa9@bloomberg.net.
To contact the editor responsible for this story: Rocky Swift at rswift5@bloomberg.net
