FOREX-Euro pressured as Spain borrowing concerns grow

Fri Apr 13, 2012 4:10pm IST

* Euro dips, data shows Spanish banks' reliance on ECB

* Still expected to hold within $1.30-$1.35 range

* Aussie falls as China growth disappoints

By Nia Williams

LONDON, April 13 (Reuters) - The euro slipped on Friday as Spanish bond yields rose on data showing the country's banks were relying heavily on ECB lending, although the common currency looked unlikely to break out of its recent range against the dollar.

Disappointing Chinese GDP data also weighed on the euro and pushed the Australian dollar down 0.5 percent against its U.S. counterpart. The Chinese economy grew 8.1 percent in the first quarter of 2012, below forecasts of 8.3 percent.

Some market players said the Aussie's fall may be temporary, with speculation of another round of quantitative easing (QE) from the U.S. Federal Reserve likely to support riskier assets.

With little economic data scheduled for the European session trade was relatively subdued. But the euro's fall on the news from Spain highlighted the currency's vulnerability to any sudden blowouts in peripheral bond yields, analysts said.

Spanish yields have climbed in recent weeks to just below 6 percent on concerns about the country's fiscal position, and Italian yields were also dragged higher on Friday.

The common currency was last down 0.3 percent on the day versus the dollar at $1.3150, with market players citing selling by an Asian central bank.

"This (latest data) is starting to put spreads under a little bit of pressure," said Lauren Rosborough, senior currency strategist at Societe Generale.

Spain's banks relied heavily on European Central Bank liquidity lines in March and borrowed a record 316.3 billion euros, almost double the amount borrowed in February.

Rosborough said although market players were aware Spanish banks were leaning heavily on ECB liquidity lines, confirmation of the bad news was a negative for the euro.

"There's no new news but on the lack of other information and data the market is drifting in one direction," she said.

Despite edging lower the euro was seen as unlikely to break out of the lower end of the $1.30-$1.35 range it has traded in since January.

Traders reported automated stop-loss euro buy orders above resistance at Thursday's high and the 21-day moving average around $1.3212. The euro could break higher if those stops are triggered but most analysts said any moves would be limited.

"We would need a clear-cut statement of QE3 or anything new on the debt crisis to break out of this range," said Antje Praefcke, currency strategist at Commerzbank.


The Australian dollar, strongly influenced by China data due to commodity-driven Australia's reliance on Chinese demand, fell 0.5 percent to a session low of US$1.0370.

The move pared gains of 1.2 percent on Thursday which were driven by surprisingly strong local jobs report and solid loan numbers from China.

Market players reported stop-loss buy orders building around $1.4060-65, above Thursday's high, and some said the Aussie could rebound after the sell-off. Nomura put out a long Aussie trade recommendation against the dollar, targeting US$1.0800 with a stop at US$1.0200.

"We view yesterday's strong Australian employment and Chinese loan data as more important than the overnight Chinese Q1 GDP release and hence see the overnight sell-off in AUD as providing good levels to go long," Nomura analyst Geoff Kendrick said in a note.

Major currencies showed no reaction to news that North Korea's much hyped long-range rocket crashed into the sea shortly after launch on Friday.

The dollar was steady versus the yen at 80.93, extending gains from Wednesday's six-week low of 80.57 yen.

Market players were also looking ahead to U.S. CPI inflation data due at 1230 GMT. Analysts said any sign of stronger inflation could limit the Fed's scope to ease policy further.

However, the Dec 2013 fed funds future has cancelled out the possibility of a 0.25 point hike at the end of 2013, underlining the recent shift in expectations back toward additional Fed easing.

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