BLBG:Euro Declines Before ECB Meeting, Retail Sales Report
The euro fell for second day before the European Central Bank meets tomorrow to discuss measures to tackle the region’s debt crisis.
ECB President Mario Draghi told lawmakers in a closed-door session in Brussels this week the bank’s primary mandate compels it to intervene in bond markets to ensure the euro’s survival. The 17-nation currency remained lower versus most of its major counterparts before data forecast to show retail sales declined and services contracted in the euro area. The Australian dollar touched a six-week low after the government reported second- quarter gross domestic product grew less than analysts expected.
“A lot of expectations have been built into the ECB meeting since President Draghi’s comments,” said Yuki Sakasai, a currency strategist at Barclays Plc in New York. “There’s a risk of a disappointment, so the euro may face some downward pressure into the meeting.”
The euro fell 0.3 percent to $1.2523 as of 7:12 a.m. in London from yesterday when it declined 0.2 percent. It climbed to $1.2638 on Aug. 31, the strongest since July 2. The shared currency dropped 0.4 percent to 98.16 yen. The yen was little changed at 78.39 per dollar.
ECB President Draghi said Sept. 3 that the bank has lost control of borrowing costs in the monetary union, according to a recording of his comments obtained by Bloomberg News. Bond purchases are “a way to comply with our primary mandate,” Draghi said, adding: “frankly, all this also has to do very much with the continuing existence of the euro.” The central bank announces its next policy decision tomorrow.
ESM Ruling
Germany’s Constitutional Court is set to rule on the legality of the European Stability Mechanism, the euro region’s permanent bailout fund, on Sept. 12. The ECB may delay giving full details of Draghi’s bond-buying plan until after the ruling, two central bank officials who spoke on condition of anonymity, said on Aug. 24.
“Ahead of the German Constitutional Court ruling, I’m not sure if the ECB can deliver all that they want to,” said Robert Rennie, chief currency strategist at Westpac Banking Corp. in Sydney. “The dollar is finding some support. It’s difficult to see a clear picture ahead of risk events.”
The Dollar Index (DXY), which IntercontinentalExchange Inc. uses to track the greenback against those of six U.S. trading partners, added 0.3 percent to 81.535.
Downward Channel
The euro may decline to a two-year low against the U.S. dollar after it reaches the upper range of its so-called downward channel, Pak Lai Ng, a Singapore-based technical analyst at Forecast Pte said, citing trading patterns. The common currency is in the channel, which has a top line demarcated by highs of $1.4549 on Aug. 29, 2011 and $1.4247 on Oct. 27, said Ng.
The bottom line of the channel runs through the low of $1.3146 on Oct. 4. The single currency has never climbed above the channel whose upper limit was about $1.2674 today, according to data compiled by Bloomberg.
The euro has dropped 3.6 percent in the past six months, the worst performance among 10 developed-nation currencies tracked by Bloomberg Correlation-Weighted Indexes. The Australian currency weakened 2.7 percent in the same period, the third-biggest loser.
A final reading of an index based on a survey of purchasing managers in services industries in the euro area may confirm a drop to 47.5 in August from 47.9 a month earlier, below the 50 level which separates contraction from expansion, according to the median estimate of economists surveyed by Bloomberg before Markit Economics releases its figures today.
Global Economy
Economists in a separate Bloomberg poll predict a European Union report today will show retail sales fell 1.7 percent in July from a year earlier
Australia’s dollar dropped to six-week lows against the greenback and yen as signs the global economy is slowing reduced demand for riskier assets.
The nation’s economy expanded 0.6 percent in the second quarter from the previous three-month period, when it grew a revised 1.4 percent, the statistics bureau reported today. The median estimate of economists in a Bloomberg survey was growth of 0.7 percent.
A private survey showed the country’s services industry contracted in August at the fastest pace in fourth months. The performance of services index fell 4.1 points to 42.4 last month, the biggest drop since April, Commonwealth Bank of Australia and the Australian Industry Group said today.
Australia’s dollar touched $1.0190, the weakest level since July 25, before trading at $1.0196, 0.3 percent below yesterday’s close. The so-called Aussie weakened 0.3 percent to 79.96 yen, after earlier touching 79.88, also the lowest since July 25.
“The outlook for Aussie remains rather poor given the deterioration in the global growth backdrop,” said Sue Trinh, a senior currency strategist in Hong Kong at Royal Bank of Canada.
To contact the reporters on this story: Mariko Ishikawa in Tokyo at mishikawa9@bloomberg.net; Monami Yui in Tokyo at myui1@bloomberg.net;
To contact the editor responsible for this story: Rocky Swift at rswift5@bloomberg.net
