There hasn’t been much good news lately in the forex market, especially for the euro and U.S. dollar- even though the U.S. dollar has held a little steadier than the euro. The beginning of the week has bred major problems for the already weakened euro as the news about worsening debt in Spain from last week flowed over into the market Monday. On Tuesday, the problems for Europe were shown to be even more severe as Greece was revealed to be under the threat of backing out of the euro. Bonds throughout Europe had the highest yields in decades, and the currency broke record lows against most major currencies. Nearing mid-week, the euro steadied against the U.S. dollar despite the news of weak business data in the euro zone. The concerns over the poor Spanish economy, the downgraded Italian credit score, and the situation in Greece are starting to weigh over the heads of traders.
—–
Speculation over possible Japanese intervention to tame yen strength also swirled as the Japanese currency hovered near the Y78 mark against the buck.
The euro traded either side of $1.21 over the session after a preliminary reading of the euro-zone composite purchasing managers’ index for July came in unchanged from June. Nonetheless, it showed euro-zone companies cutting output for a sixth straight month. A reading below 50 means a month-to-month contraction.
That followed data which showed private sector activity in Germany fell to its lowest level in more than three years and offset earlier Chinese data which suggested the world’s second-biggest economy might escape a hard landing.
“[The] euro-area PMI hasn’t changed, but it certainly hasn’t brightened the overall outlook for the euro zone while the German numbers were particularly weak, which shows us that the problems of the periphery nations have become a general euro-area wide problem,” said Paul Robinson, European head of foreign exchange research at Barclays PLC in London.
The market’s main potential drivers remained Spain and Greece, strategists said. Talks are due Tuesday between the finance ministers of Spain and Germany, while officials from the troika–the European Commission, European Central Bank and International Monetary Fund–are due in Athens to review Greece’s reform program.
Spain successfully sold shorter-dated treasury bills at auction, but with benchmark 10-year bond yields still at euro-era highs of around 7.5%, speculation remains rife that Spain could yet resort to a full sovereign bailout.
Elsewhere, the Japanese yen held onto its gains against the dollar and edged towards levels some in the market thought could provoke the Bank of Japan into to action, to weaken the currency and protect its exporters.
“Aside from Spain and Greece, another focus in the next few days could be the possibility of yen intervention,” said Peter Kinsella, currency strategist at Commerzbank. “People are beginning to get a little anxious.”
The Hungarian forint was steady against the euro ahead of an interest rate decision by the Hungarian central bank at 1200 GMT. While analysts think a rate cut is needed, many believe rates will remain on hold at 7% until talks with the International Monetary Fund over financial aid are concluded within the next few months.
Looking ahead, Federal Reserve chairman Ben Bernanke is due to speak at 1245 GMT, while eyes will be on U.S. preliminary manufacturing data at 1300 GMT.
At 1102 GMT, the euro was trading at $1.2097 against the dollar, compared with $1.2067 late Monday in New York, according to trading system EBS. The dollar was at Y78.18 against the yen, compared with Y78.40, while the euro was at Y94.57, compared with Y94.98. Meanwhile, the pound was trading at $1.5506 against the dollar, compared with $1.5508 late Monday in New York.
The Wall Street Journal Dollar Index, which tracks the U.S. dollar against a basket of major currencies, was at 72.64 from about 72.61.
Source
After reaching a two year record setting low versus the U.S. dollar, the euro finally held its ground on Tuesday. This is following the news of business data from the euro zone showing a very real risk of a recession in the area. Combine this with earlier news about the debt crisis in Spain, a major downgrade to the Italian credit rating last week, and now mounting troubles in Greece are playing their part. The bad news for Europe is obviously wetting the appetites of those looking to buy a riskier currency.
The Japanese Yen got close to an Y78 mark versus the U.S. dollar following the news of a potential Japanese intervention to control the strength of the yen.
Remember that testimony we kept speculating on last week about the testimony out of the Fed? We’re going to find out about that soon, and what chairman Ben Bernanke has to say about the data about U.S. preliminary manufacturing will certainly have a major impact on the forex market for U.S. dollar trades.
What you expect out the late week forex?
Our Rating: [yasr_overall_rating]