WSJ:WORLD FOREX:European Debt Crisis Remains In Focus, Major Currencies Stable
-- Focus of foreign exchange market stays on European sovereign debt crisis, particularly European bond movements, auctions
-- Fewer market participants mean any sudden movement could be magnified
-- Major currencies stable in quiet market
By Kosaku Narioka
Of DOW JONES NEWSWIRES
TOKYO -(Dow Jones)- While the European sovereign debt crisis will continue to be the focus of the foreign exchange market over the coming weeks, the euro remained steady versus the dollar and the yen Monday in Asia amid quiet trading, with the U.S. and U.K. markets closed later in the global day for seasonal breaks.
Despite the apparent calm in the market, though, many signs suggest that European sovereign debt problems are far from over.
Italian government bond yields remained at elevated levels at the end of last week, while last Thursday's record use of the European Central Bank's overnight deposit facility reflects ongoing distrust in interbank lending markets.
"I don't think the key question has changed at all," said Nobuaki Kubo, vice president of foreign exchange at Brown Brothers Harriman Investment Services in Tokyo. "The focus is likely to remain on European government bonds, auctions, and (the European Central Bank's) operations."
Italy will conduct bond auctions on Wednesday and Thursday.
"Since progress isn't expected in the building of a safety net, including an expansion of the EFSF (European Financial Stability Facility) and financial help from the international community, such as the IMF (International Monetary Fund), the euro may face selling pressure if the bond auction results aren't great," said Masafumi Yamamoto, chief FX strategist at Barclays Bank in Tokyo.
If there are any movements, they could be magnified as trading volume is low, market participants warned.
But a further improvement in U.S. economic indicators, which have shown some signs of firmness in recent weeks, could temporarily draw some attention away from the European sovereign debt crisis, shifting more funds into equity, BBH's Kubo said.
If that happens, risk-averse yen-buying may ease a little, he said.
The euro was at $1.3059 at 0450 GMT from $1.3045 late Friday in New York, according to EBS. The common currency was at Y101.84 from Y101.92.
The dollar was at Y77.99 from Y78.11. The U.K. pound was at $1.5616 from $1.5602. The dollar was at CHF0.9365 from CHF0.9368.
The ICE Dollar Index, which tracks the U.S. dollar against a basket of currencies, was at about 79.994 from 79.997.
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