Major currency pairs range-bound ahead of Sunday euro summit
By Deborah Levine and William L. Watts, MarketWatch
NEW YORK (MarketWatch) — The euro fell further Thursday, after trading erratically in a tight range, as market participants remain nervous about European leaders bickering over a plan to contain the euro zone’s debt crisis.
A news report that the German government hasn’t ruled out delaying a Sunday summit of euro-zone leaders pressured the euro, as investors kept a close eye out for developments on the sovereign-debt front ahead of the summit.
The euro EURUSD -0.5214% briefly pressed above $1.38 then fell to $1.3702, down from $1.3745 in North American trading late Wednesday.
The shared currency also turned down against the Japanese yen to buy ¥105.33 EURJPY -0.3480% , from ¥105.89.
The dollar index DXY +0.32% , which tracks the U.S. unit against a basket of six major rivals, turned up to 77.302 from 77.152 Wednesday.
Germany’s Die Welt newspaper said the German government hasn’t ruled out delaying a Sunday summit of euro-zone leaders.
“The euro has come under selling pressure this morning as German officials continue to throw cold water on the market’s hope for a comprehensive rescue plan this weekend,” said Kathy Lien, director of currency research for GFT.
“Headlines are dominating short term risk appetite and will continue to do so over the next 48 hours. Even though investors are still choosing to focus on the positive, German and French officials are not so subtly hinting that a deal will be difficult to strike,” she said in a note.
The conflicting reports about the prospects for European leaders agreeing on a grand plan to resolve the region’s debt and banking crisis weighed on investors’ appetite for risky assets, with U.S. stocks falling and Treasury bond prices rising. Read more on Treasury bonds.
Earlier, news reports highlighting draft guidelines for the operation of a revamped European Financial Stability Facility, or EFSF, was widely credited for a pop in the euro. Read about the EFSF guidelines.
Strategists said there appeared to be few major surprises in the document.
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, said Jane Foley, senior currency strategist at Rabobank.
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. The summit Sunday in Brussels has already been postponed once.
“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.
Analysts also noted that Greece is due to vote on an austerity package during the session “despite the violent protests that continue in Athens,” strategists at Brown Brothers Harriman wrote in a note. “We expect the vote will pass but suspect that the market reaction is likely to remain limited” ahead of this weekend’s summit.
Also Thursday, the British pound gave up earlier gains after the U.K. Office for National Statistics said retail sales rose much more than expected in September, though tempered by a downward revision to August data. Read about U.K. retail sales.
Sterling GBPUSD -0.2700% lately traded at $1.5700, down from $1.5758.
Against the yen, the dollar USDJPY +0.1139% rose marginally to 76.84 yen, from ¥76.79 Wednesday.
