Dollar struggles, hits 6-week low vs euro
Tuesday, 21 July 2009
LONDON, Jul 20 (Reuters): The dollar fell broadly on Monday, hitting a six-week low against the euro as traders flocked to riskier assets as speculation for solid corporate earnings boosted share prices.
A further pick-up in risk appetite pushed the euro as high as around $1.4248 according to Reuters data, its strongest since early June, which helped to push the dollar to a six-week trough against a currency basket.
Some in the market also said that a last-minute rescue of CIT Group late on Sunday was also helping to boost sentiment for risk, as it eased concerns that the ailing US lender may have to file for bankruptcy protection.
Assets considered to be higher risk extended gains after rallying last week when investors took mixed US corporate earnings as an optimistic sign that the economy is improving.
Analysts said such sentiment continued on Monday as European shares .FTEU3 rose as much as 1.5 per cent.
"We're expecting a risk-on day today," said Carl Hammer, currency strategist at SEB Merchant Banking in Stockholm. "The currency market is continuing its momentum from last week."
Volumes were light with Tokyo shut for a local holiday.
At 1000 GMT, the euro traded a full per cent higher $1.4235. A climb above $1.4339 touched in June would take the pair to its highest level of the year.
The dollar index .DXY was down 0.6 per cent at 78.860, after falling as low as 78.799, its lowest since early June.
The US currency struggled broadly, pushing sterling and the Australian and New Zealand currencies each up as much as roughly 1.5 per cent, with the New Zealand dollar rising near its highest level of the year.
Despite broad weakness, the dollar rose 0.2 per cent to 94.40 yen as risk demand also stung the Japanese currency. This helped to push the UK and antipodean currencies up nearly 1.5 per cent against the yen.
The euro's climb on Monday lifted it above the 50 per cent Fibonacci retracement level of the pair's peak-to-trough move in 2008, which was located around $1.4190.
Some technical analysts said this opened the way for further gains in the pair, particularly if it ended the week above that level, while others were less optimistic, pointing out that previous efforts to do so have proved unsuccessful.
"The market is going to be bid over the next day or two but I don't see dollar weakness lasting past the end of the week," said Tom Pelc, head of technical strategy at RBS in London.
"I don't think the market can get above $1.46 on any kind of continued upward move," he added, referring to the next key Fibonacci level, the 61.8 per cent retracement. "The last time it tried that, in November it failed quite traumatically."
Growing expectations of an improvement in the US economy have sent investors searching for higher yields.
Last week, Goldman Sachs Group and JPMorgan Chase reported better-than-expected results for the second quarter, while Bank of America posted a lower quarterly profit.
US banks reporting this week include American Express, State Street and Bank of New York Mellon.
Federal Reserve Chairman Ben Bernanke will offer his semi-annual testimony to the US government this week. Analysts expect Bernanke to issue a fairly upbeat assessment of the economy, and focus will be on whether he makes any reference to possible exit strategy from quantitative easing.
A further pick-up in risk appetite pushed the euro as high as around $1.4248 according to Reuters data, its strongest since early June, which helped to push the dollar to a six-week trough against a currency basket.
Some in the market also said that a last-minute rescue of CIT Group late on Sunday was also helping to boost sentiment for risk, as it eased concerns that the ailing US lender may have to file for bankruptcy protection.
Assets considered to be higher risk extended gains after rallying last week when investors took mixed US corporate earnings as an optimistic sign that the economy is improving.
Analysts said such sentiment continued on Monday as European shares .FTEU3 rose as much as 1.5 per cent.
"We're expecting a risk-on day today," said Carl Hammer, currency strategist at SEB Merchant Banking in Stockholm. "The currency market is continuing its momentum from last week."
Volumes were light with Tokyo shut for a local holiday.
At 1000 GMT, the euro traded a full per cent higher $1.4235. A climb above $1.4339 touched in June would take the pair to its highest level of the year.
The dollar index .DXY was down 0.6 per cent at 78.860, after falling as low as 78.799, its lowest since early June.
The US currency struggled broadly, pushing sterling and the Australian and New Zealand currencies each up as much as roughly 1.5 per cent, with the New Zealand dollar rising near its highest level of the year.
Despite broad weakness, the dollar rose 0.2 per cent to 94.40 yen as risk demand also stung the Japanese currency. This helped to push the UK and antipodean currencies up nearly 1.5 per cent against the yen.
The euro's climb on Monday lifted it above the 50 per cent Fibonacci retracement level of the pair's peak-to-trough move in 2008, which was located around $1.4190.
Some technical analysts said this opened the way for further gains in the pair, particularly if it ended the week above that level, while others were less optimistic, pointing out that previous efforts to do so have proved unsuccessful.
"The market is going to be bid over the next day or two but I don't see dollar weakness lasting past the end of the week," said Tom Pelc, head of technical strategy at RBS in London.
"I don't think the market can get above $1.46 on any kind of continued upward move," he added, referring to the next key Fibonacci level, the 61.8 per cent retracement. "The last time it tried that, in November it failed quite traumatically."
Growing expectations of an improvement in the US economy have sent investors searching for higher yields.
Last week, Goldman Sachs Group and JPMorgan Chase reported better-than-expected results for the second quarter, while Bank of America posted a lower quarterly profit.
US banks reporting this week include American Express, State Street and Bank of New York Mellon.
Federal Reserve Chairman Ben Bernanke will offer his semi-annual testimony to the US government this week. Analysts expect Bernanke to issue a fairly upbeat assessment of the economy, and focus will be on whether he makes any reference to possible exit strategy from quantitative easing.