FOREX-Euro, sterling hit multi-month highs vs dollar
Trade the News
Wednesday July 14, 2010 07:24:16 AM GMT
* Euro hits fresh two-month high vs dollar
* Weak U.S. data weighs on greenback, earnings dont help
* Sterling soars to 10-week high on employment data
(Recasts, updates prices, adds comment)
By Steven C. Johnson
NEW YORK, July 14 (Reuters) - The euro hit a two-month high on Wednesday and the dollar fell against the yen as data showing U.S. retail sales declined for a second straight month stoked fears the U.S. recovery may be slowing.
Strong U.S. corporate earnings also encouraged investors to seek higher-yielding, higher-risk currencies and assets, lifting the euro and triggering a bevy of automatic buy orders that pushed it above $1.2770, its highest since early May.
Sterling soared to a 10-week high as better-than-expected UK employment data added to speculation the Bank of England may have to start thinking about raising interest rates.
Earlier, the euro fell below $1.27 on lingering concern about some euro zone countries' debt woes. However, recent smooth bond auctions in Portugal, Germany and Greece have eased such worries.
The dollar, meanwhile, struggled after the June retail sales report, which followed data on Tuesday showing a wider U.S. trade deficit in May.
The dollar has not been helped by positive corporate results as some investors see them as a lagging indicator of economic health. Markets are instead watching for data that suggests the economy could slow in the second half of the year.
Analysts said some investors were bracing for the Federal Reserve to trim its growth forecast when minutes from its most recent policy meeting are released this afternoon.
"People are focused on the softness of U.S. economic data," said Marc Chandler, senior currency strategist at Brown Brothers Harriman in New York. "The euro's pullback against the dollar has been shallow. The market still wants to take the euro higher."
The euro traded at $1.2768, up 0.4 percent and just off a session peak. It was unchanged at 112.99 yen, while the dollar fell 0.2 percent to 88.50 yen.
Sterling rose 0.7 percent to $1.5275 after earlier hitting its highest level since May after better-than-expected employment data.
EARNINGS, TECHNICAL BOOST EURO
While U.S. data has been on the soft side, U.S. corporate earnings have been surprisingly strong so far, and that's also helped risk appetite.
The next target for euro/dollar was the $1.30 area, said Roberto Mialich, currency strategist at Unicredit in Milan.
Others said the next target was at $1.2780, the 50 percent retracement of the euro's fall from mid-April to the June low.
Richard Ross, technical strategist at Auerbach Grayson in New York, said breaks through $1.27 and then $1.2760 brought in new buyers and said momentum may carry it to $1.28.
"Markets like round numbers and 1.28 is a good psychological one, even though it is not a particularly key technical indicator," he said. "But certainly, a lot of people would like to see that one go."
With the U.S. 10-year Treasury yielding barely more than 3 percent, traders also cited a growing demand for higher-yielding assets and growth-related currencies.
The Australian and New Zealand dollars rose against the greenback on Wednesday while stocks recovered earlier losses.
"If growth is slowing, yields are likely to fall, so people want to lock in higher yields now," Chandler said. "That's feeding a healthy appetite for risk."
The trend appears to hold for private and public investors. The latest Treasury data shows central banks increased purchases of U.S. agency and corporate debt, both of which offer higher yields than Treasuries.
But Walter Zimmerman, vice president and chief technical analyst at United-ICAP, says the jury's still out on whether the euro has bottomed. The currency is still down 11 percent against the dollar this year.
"We need to see the euro take out $1.2850. That will do it for us," he said. "That would say, 'OK it is it's not an intermediate term bear market rally in the euro.'"
(Additional reporting by Vivianne Rodrigues, Wanfeng Zhou and Nick Olivari in New York; Editing by Andrew Hay)
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