Euro sluggish as EU summit looms large, expectations low

SYDNEY Thu Jun 28, 2012 4:51am IST

The map of Europe is featured on the face of a one Euro coin seen in this photo illustration taken in Paris, January 31, 2012. REUTERS/Mal Langsdon

The map of Europe is featured on the face of a one Euro coin seen in this photo illustration taken in Paris, January 31, 2012.

Credit: Reuters/Mal Langsdon

SYDNEY (Reuters) - The euro stayed on the backfoot in Asia on Thursday, though its downside was seen limited lest an impending summit of European leaders surprised markets with concrete measures to tackle the region's debt crisis.

The single currency bought $1.2474, versus $1.2466 late in New York, still within easy reach of this week's trough around $1.2441. It remained off a high of $1.2748 set early last week.

Against the Australian dollar, the euro plumbed a near four-month low at A$1.2352. On the yen, it bought 99.45, not far off a two-week trough of 98.74 set earlier in the week.

"While we do not expected any material developments out of the euro zone summit, we caution that because of the increasingly low expectations surrounding the meetings, a small bit of positive news could go a long way for the euro in the short-term," said Christopher Vecchio, currency analyst at DailyFX.

"As leaders convene in should be largely dependent on headlines rather than fundamentals or technicals, and as such, volatility should be high."

The first press conference is scheduled at 2000 GMT, after a working dinner, BNP Paribas analysts said.

Further dimming expectations of any breakthrough at the talks, German Chancellor Angela Merkel on Wednesday brushed aside increasingly shrill calls from Spain and Italy for emergency action to lower their soaring borrowing costs.

European Union leaders go into the two-day meeting more openly divided than at any time since the debt crisis erupted in Greece in 2010 and spread over the euro zone.

With the euro floundering, the dollar index .DXY touched a two-week high at 82.699. The greenback also held on to most of its overnight gains on the yen to stand at 79.75. However, that still left it lower on the week following Monday's near 1 percent slide.

The U.S. dollar was also softer on the Australian currency, which edged up to $1.0086, still trying to recover from last week's drop from above $1.0200. Strong resistance is seen around $1.0130, a level representing the 61.8 percent retracement of its recent decline.

"We continue to prefer positioning for a weaker USD in response to a slight positive surprise (at the summit)," said analysts at BNP Paribas, adding they were staying long NZD/USD position, targeting $0.8200 from $0.7780.

Markets will also be keeping a close eye on the outcome of an Italian bond sale. Italy will test market appetite with up to 5.5 billion euros of five- and 10- year bonds on Thursday.

It'll probably have to pay dear to get the bonds away even though demand is expected to be supported by domestic investors.

(Editing by Wayne Cole)

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Comments (1)
dan_kirkpatrick wrote:
I have to question the whole concept of the Euro and Euro Zone. I am recalling Germany’s rebuilding of it’s economy some years back, dropping to a twenty hour work week for all employees to attain full employment among the steps it took to accomplish the task. Germans made the hard decisions, took the pain, and it succeeded in measure.

Now the rest of Europe wants what Germans achieved through the upheaval of their lives and livelihoods. Except the rest don’t want to go through that pain to attain it.

Don’t get me wrong, I’m not saying that the Germans or Germany are the paradigms of virtue. I just don’t see Germans paying for the entitlements of other countries’ citizens that they, themselves, do not enjoy. In this Merkel is most likely correct, there would have to be some ‘leveler’, some manner of assuring that all paid in proportionately and were entitled to the same benefit from that contribution.

Simply, it would take a Federation of the different states to bring about a fiscal unity, a sharing of debt. In creating the Euro and Euro Zone, the cart was put before the horse.

The various Euro Zone state economies would need to proceed as though they were on a gold standard instead of worrying about currency manipulation if the Euro is to survive.

Jun 27, 2012 8:49am IST  --  Report as abuse
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