Major currency pairs range-bound ahead of Sunday euro summit
By William L. Watts, MarketWatch
FRANKFURT (MarketWatch) — The euro reversed early weakness to trade slightly higher in a range-bound Thursday session as market participants remain nervous about European leaders bickering over a plan to contain the euro zone’s debt crisis.
Investors kept a close eye out for developments on the sovereign-debt front ahead of a summit this weekend in Brussels.
The euro EURUSD -0.0273% briefly pressed above $1.38 and changed hands in recent trade at $1.3783, up from $1.3745 in North American trading late Wednesday. The shared currency also traded at ¥105.94 EURJPY +0.1775% against the Japanese yen from ¥105.89.
The dollar index DXY +0.04% , which tracks the U.S. unit against a basket of six major rivals, slipped to 76.895 from 77.152 Wednesday.
News reports highlighting draft guidelines for the operation of a revamped European Financial Stability Facility, or EFSF, was widely credited for the pop in the euro, although strategists said there appeared to be few major surprises in the document. Read Market Pulse about the EFSF guidelines.
The euro’s reaction instead shows the market remains “predisposed to good news,” said Jane Foley, senior currency strategist at Rabobank in London.
Choppy trading, however, is likely to prevail in the run-up to Sunday’s summit. And recent euro gains from the early October low of $1.3145 could prove difficult to maintain following Sunday’s meeting, Foley said.
French President Nicolas Sarkozy on Wednesday jetted unexpectedly to Frankfurt — as his wife, Carla Bruni, was about to give birth to their first child — to hold talks with German Chancellor Angela Merkel, International Monetary Fund Managing Director Christine Lagarde and other top officials. The officials had gathered at the city’s old opera house for a farewell celebration for Jean-Claude Trichet, who is stepping down as president of the European Central Bank.
Still weighing options for EFSF
Officials offered no assessment of the talks, which appeared centered on disagreements over leveraging the EFSF. France reportedly continued to push for leveraging the fund through the European Central Bank, a move opposed by Germany as well as the central bank.
Other proposals have centered on using the EFSF to provide insurance against initial losses on government bonds, a move that many economists have criticized as likely increasing the threat to France’s triple-A credit rating. When they meet Sunday, euro-zone leaders will make an effort to come up with a comprehensive plan to address the debt crisis.
“It seems safe to say that aside from the reservations everyone in markets has about using the EFSF as a first-loss insurer in order to boost its firepower, delivering a comprehensive package of proposals to ‘save Europe’ isn’t proving too easy,” said Kit Juckes, head of foreign exchange at Societe Generale.
He expects nervousness to feed weakness in the euro as the weekend approaches and remains short the euro versus the dollar with a stop at $1.3930 and a target of $1.31.
Also Thursday, the British pound GBPUSD -0.1939% nudged up to $1.5783, up from $1.5758.
The U.K. Office for National Statistics said retail sales rose by 0.6% in September. Economists had forecast a flat reading.
The data were tempered, however, by a downward revision to August data, showing a 0.4% drop versus a previous estimate of a 0.2% decline. Third-quarter retail sales volumes declined 0.2% compared to the second quarter, even with the September spike, noted Howard Archer, chief U.K. economist at IHS Global Insight.
The dollar USDJPY +0.1335% fetched 76.81 yen, little changed from ¥76.79 on Wednesday.
