BLBG:Euro Touches 4-Month Low as Schaeuble Says Crisis to Last
The euro touched a four-month low against the dollar as German Finance Minister Wolfgang Schaeuble said financial-market turmoil may last another two years, adding to concern Europe’s crisis is worsening.
The 17-nation currency reversed its losses as a technical indicator signaled its recent decline has come too fast. The dollar and yen were poised for weekly gains against most of their major counterparts as investors sought safer assets. The euro was headed for a fourth weekly decline versus the yen before a meeting of Group of Eight nations’ leaders beginning today.
“Greece still weighs on risk foreign exchange as we go into the G-8,” said Boris Schlossberg, director of research at online currency trader GFT Forex in New York. “Everyone seems to be short the euro here -- it’s a very popular trade -- so it is vulnerable to a pop to shake out the week’s shorts.” A short is a bet the price of an asset will fall.
The euro slid as much as 0.4 percent to $1.2642, the weakest since Jan. 16, before rising 0.1 percent to $1.2710 at 10:16 a.m. in New York. It dropped 1.6 percent this week. The shared currency fell 0.1 percent to 100.82 yen, having declined 2.4 percent this week, the most since the period ended April 6. The dollar was little changed at 79.29 yen.
Canada’s dollar extended gains versus its U.S. counterpart after consumer price inflation rose 2 percent in April from a year ago, compared with a 1.9 percent gain the prior month, according to Statistics Canada.
The loonie, as the currency is known, added 0.2 percent to C$1.0176 per U.S. dollar, paring its decline this week to 1.7 percent.
G-8 Summit
The Australian and New Zealand dollars tumbled against the greenback and yen. The Aussie fell 0.3 percent to 98.61 U.S. cents and touched 97.95, the lowest level since Nov. 28. The kiwi dropped 0.7 percent to 75.82 U.S. cents.
Europe being in crisis has become “practically normal,” Schaeuble said in a recorded interview broadcast today on France’s Europe 1 radio. Even so, “in 12 to 24 months we’ll see a calming of financial markets,” he said.
German Chancellor Angela Merkel and fellow European leaders will face pressure from their G-8 counterparts to do more to quell the turmoil after speculation Greece will exit the euro wiped almost $4 trillion from global stock markets this month.
Fitch lowered Greece’s ranking to CCC from B-, saying the strong showing of “anti-austerity” parties in elections on May 6 and subsequent failure to form a government underscored the lack of public and political support for the country’s bailout from the European Union and International Monetary Fund.
‘Contagion to Spain’
Moody’s yesterday lowered the credit ratings of Spain’s biggest banks including Banco Santander SA (SAN) and Banco Bilbao Vizcaya Argentaria SA, citing economic weakness and the government’s mounting budget strain.
“Greece is in trouble and that is pushing the euro lower,” said Geoff Kendrick, head of European currency strategy at Nomura International Plc in London. “The real issue is contagion to Spain. The markets can probably start to stabilize sometime soon, there is a lot of bad news priced in and we are near a lot of key technical levels in euro-dollar.”
The 14-day relative strength index for the euro against the dollar fell to 21, the lowest since October 2008. It has been below the “oversold” 30 level on every day this week.
‘Extremely Vulnerable’
“The euro is finding a little bit of support at these levels,” said Jane Foley, a senior currency strategist at Rabobank International in London. “The euro remains extremely vulnerable. Most people see near-term downside risks.”
The euro has dropped 5.5 percent in the past year, the second-worst performance among the 10 developed-nation currencies tracked by Bloomberg Correlation-Weighted Indexes after the Swedish krona. The yen is the best performer, strengthening 8.7 percent, and dollar gained 7 percent.
The Dollar Index (DXY), which Intercontinental Exchange Inc. uses to track the greenback against the currencies of six major U.S. trading partners, was little changed at 81.399 after rising on the previous 14 days, the longest winning streak since its inception in 1973.
The Dollar Index’s “rally phase” is here to stay, according to Niall O’Connor, a technical analyst at JPMorgan Chase & Co. in New York.
“There is still little evidence of a reversal,” O’Connor wrote in a note to clients today. The gauge must fall below the key support level of 80-80.33 to reassert the short-term downward bias, he said. Support refers to an area where buy orders may be clustered.
‘Market Remains Nervous’
The yen has risen versus all of its 16 major counterparts this week as a report from the Federal Reserve Bank of Philadelphia yesterday showed its general economic index unexpectedly fell to the lowest since September.
“The global market remains nervous,” said Kikuko Takeda, a senior currency economist at Bank of Tokyo Mitsubishi UFJ Ltd. in London. “We can’t buy the euro, and if the U.S. economic outlook is uncertain, yen will be bought.”
Japan’s Finance Minister Jun Azumi said today he is watching currency moves with great interest and more caution. Azumi said Japan will take appropriate steps if needed in the foreign-exchange market.
To contact the reporters on this story: Catarina Saraiva in New York at asaraiva5@bloomberg.net; Emma Charlton in London at echarlton1@bloomberg.net
To contact the editor responsible for this story: Dave Liedtka at dliedtka@bloomberg.net
