Japanese yen at strongest level since World War II
By Deborah Levine and William L. Watts, MarketWatch
NEW YORK (MarketWatch) — The U.S. dollar fell further against the euro and other major currencies after dropping sharply to a record low against the Japanese yen, which some analysts attributed to the market hitting key levels that triggered selling of the greenback and a more general unwinding of positions ahead of key meetings in Europe.
The euro gained earlier even though a Sunday summit of European Union leaders is no longer expected to produce a far-reaching plan to address the region’s debt and banking crisis. European leaders have promised a plan will emerge from a subsequent summit, to be held no later than Wednesday.
The dollar USDJPY -0.81% dropped as low as 75.76 Japanese yen, down more than 1% from ¥76.85 in late U.S. trading Thursday. It lately bounced back a bit to ¥76.23.
The dollar index DXY -0.75% , which tracks the U.S. unit against a basket of six major currencies including the yen and euro, fell to 76.352 versus 76.982 on Thursday.
The euro EURUSD +0.74% rose to $1.3882 from $1.3773 Thursday.
As for the drop in the dollar against the yen, “a lot of people have been trying to sell risk looking for Europe to disappoint and it’s just an ugly short squeeze devoid of any clear fundamental catalyst,” Richard Franulovich, chief currency strategist at Westpac.
Kathleen Brooks, research director at Forex.com, also noted the yen hit some key levels that triggered stop-loss orders, forcing reversal of those positions.
“Momentum can build quickly on days like this especially as we are hearing that volumes are very thin as we head into EU summits,” she said.
Waiting for Europe
After a big buildup of expectations of a grand resolution to Europe’s debt problems from a summit this weekend, German Chancellor Angela Merkel and French President Nicolas Sarkozy said late Thursday that while detailed discussions would take place Sunday, a second meeting no later than Wednesday would be held to finalize plans.
“Europe is seen to be doing the right thing and that’s providing some relative calm, but when does the storm occur?,” said Dean Popplewell, chief currency strategist at Oanda Corp.
“The fact that they have at least agreed upon a tight agenda is promoting confidence. It’s what occurs during this time will create the volatility. They have six days to get their act together, no dress rehearsal, its a live performance with all of capital markets watching. The room for error is very tight. It’s a tired, jaded and whiplashed market that’s trying to keep relative risk close to home.”
Others are concerned that the delay beyond this weekend underscores apparent divisions between Berlin and Paris over a number of issues, including calls to leverage the European Financial Stability Facility to provide authorities with more firepower to battle the crisis.
“The now commonplace stream of comments, leaks and denials hitting wires from various EU quarters has most players sitting on the sidelines waiting for some clarity,” said Elsa Lignos, senior currency strategist at RBC Capital Markets.
The shared currency saw pressure earlier in the session after the Ifo Institute’s gauge of German business confidence slipped to a 16-month low. Read about the October Ifo reading.
The British pound GBPUSD +0.97% rose to $1.5935 against the dollar, up from $1.5791 Thursday.
Deborah Levine is a MarketWatch reporter, based in New York.
William L. Watts is a reporter for MarketWatch in Frankfurt.
