MW: Dollar slips; short covering lifts battered euro
Euro-yen bounces after slipping to decade-plus low
By Deborah Levine and William L. Watts, MarketWatch
NEW YORK (MarketWatch) — The U.S. dollar declined Monday as traders reversed bets against the euro after the shared currency fell last week to a 16-month low versus the greenback and to its weakest in more than a decade against Japan’s currency.
The dollar index DXY -0.12% , which tracks the U.S. currency against six others, stood at 81.082, slipping from 81.263 on Friday. The index notched a one-year high Friday and extended the run to 81.47 on Monday before retreating.
The euro EURUSD +0.32% , rose to $1.2750 from $1.2725 late Friday in North America.
“The euro started the week with a new 16-month low early in Asia (at $1.2666), but the market was caught too short too soon and [euro/dollar] has spent most of the overnight session squeezing back toward Friday’s highs, driven more by positioning than fundamental news flow,” said Elsa Lignos, currency strategist at RBC Capital in London.
Data on U.S. futures positions had indicated traders have been building heavy short positions against the euro since late 2011.
A similar short-covering phenomenon was seen on other euro crosses, Lignos said, adding that the shared currency has struggled to make headway “beyond a clean-out” of short-term short positions as investors awaited the outcome of a meeting between German Chancellor Angela Merkel and French President Nicolas Sarkozy.
The euro pared gains Monday after the German and French leaders said they made progress on plans to enact a pact to toughen budget rules across the euro zone.
“In the past, markets have usually led up to these meetings in buoyant mood that a solution to the debt crisis could be found,” said Kathleen Brooks, research director at Forex.com. “However, after rounds and rounds of disappointment the markets seem to have learned to temper their expectations and markets seem to hold out little hope of ‘definitive’ action in the near term.”
This meeting was a prelude to a European Union summit on Jan. 30 — “and the pressure is building,” Brooks said.
Analysts at Credit Agricole said the euro remains vulnerable to pressures stemming from the European sovereign-debt crisis.
“This week, rumors about the downgrade of France and the threat of disorderly Greek default will likely continue to hang over the euro,” they said in a note Monday.
“With plenty of uncertainties ahead, risk aversion is set to remain at elevated level[s],” they said.
Also, analysts noted that the European Central Bank’s meeting this week and they officials are expected to remain dovish even if they don’t adjust rates.
On the economic front, Germany reported a 0.6% monthly decline in November industrial production after a 0.8% rise in October. Economists had forecast a 0.4% decline.
Among other major currency pairs, the euro traded at 98.05 yen EURJPY +0.28% , up 0.5% from Friday after touching its lowest level versus the Japanese unit since late 2000.
The dollar USDJPY -0.05% , meanwhile, sat at ¥76.90, down from ¥77.01 late Friday.
The British pound GBPUSD +0.13% edged up to $1.5443 from late Friday’s $1.5431.
The Australian dollar AUDUSD +0.13% fell to $1.0227 from near the $1.03 level going into the weekend.
