FOREX-Euro falls against dollar after Spain bond auction, data

Thu Dec 6, 2012 2:29am IST

* Spanish yields sharply higher after bond sale
    * Weak euro zone retail sales data
    * ECB rate decision and U.S. jobs data ahead

    NEW YORK, Dec 5 (Reuters) - The euro slipped from a
seven-week high against the dollar on Wednesday after a
disappointing Spanish bond auction and weak euro zone economic
data caused investors to bet the single currency had risen too
far, too fast in recent days
    Optimism that Greece will receive more money from its
international lenders had buoyed the euro over the past week,
but the rally lost steam as worries about Spain resurfaced. The
technical outlook also looked bearish after a break above $1.31,
even as the euro's recent gains have pushed it up 1.1 percent
year to date.
    Investors are also reluctant to make big bets on the euro
ahead of a policy meeting of the European Central Bank on
Thursday. While the bank is expected to keep its benchmark
interest rate on hold at 0.75 percent, investors will be looking
for clues on whether ECB President Mario Draghi will show a
greater willingness to cut borrowing costs in the future as the
euro zone recession deepens. 
    "The euro is struggling to hold its ground ahead of the
European Central Bank interest rate decision amid the negative
developments coming out of the region," said David Song,
currency analyst at DailyFX in New York. "The single currency
may continue to give back the rebound from the previous month as
the fundamental outlook for the euro area deteriorates."
    Spain auctioned fewer bonds than it hoped to, sending yields
sharply higher and reviving talk of an official bailout request
from Europe's fourth-largest economy. 
    A sharp fall in euro zone retail sales for October dented
hopes of a consumer-led recovery from recession, which also
pressured the euro.  
    The euro fell 0.1 percent to $1.3075, retreating from
a session peak of $1.3126 on Reuters data, the highest since
Oct. 18. It was the first fall in the euro against the dollar in
six trading sessions.
    Further chart resistance is located at the October high
around $1.3140 and the September high around $1.3170.
    Against the yen, the euro rose 0.5 percent to 107.72 yen
, having risen to a 7-1/2-month high as 107.95 on
Reuters data. The euro also hit a 2-1/2 month high against the
Swiss franc, though it surrendered gains in New York trading. 
    The dollar rose 0.6 percent to 82.38 yen.
    Investors have been expecting a more dovish stance from the
Bank of Japan if the main opposition party, as expected, wins a
Dec. 16 election. Shinzo Abe, leader of the main opposition
party, has called for the Bank of Japan to embark on "unlimited
easing" and set an inflation target at 2 percent.
    Market talk that Abe would win an outright mandate added to
the dollar's allure against the yen.    
    
    ECB, U.S. JOBS DATA AHEAD
    Camilla Sutton, chief currency strategist at Scotia Capital
in Toronto, said she expects a broader range of $1.26 to $1.32
in the euro in the near term.
    "There is still too much uncertainty to drive euro back to
its year-to-date highs (near) $1.35; accordingly we would expect
the current rally to top out."
    On Friday, the U.S. Labor Department is to releases non-farm
payrolls data for November.
    U.S. private-sector employers added 118,000 jobs in
November, a report by payrolls processor ADP showed on
Wednesday. Economists surveyed by Reuters had forecast the ADP
National Employment Report would show a gain of 125,000 jobs. 
    A separate report showed the pace of growth in the U.S.
services sector increased more than expected in November. The
data had a limited impact on currencies. 
    Some strategists said the euro could also weaken if signs
intensify that U.S. policymakers are struggling to avert the
so-called fiscal cliff, fueling worries the global economy could
suffer, and lifting demand for the safe-haven dollar.
    The fiscal cliff is the combination of tax hikes and
spending cuts due to kick in early next year that could tip the
world's biggest economy into recession.
    "Nothing is going on" in the talks," House Majority Leader
Eric Cantor told reporters following a meeting with fellow
Republicans. "We ask the president to sit down with us."
 
    Later in the day, however, President Barack Obama said that
a deal was possible within about a week if Republicans
acknowledged the need to raise taxes on the wealthiest
Americans. 
    The New Zealand dollar was last up 0.5 percent to US$0.8280.
New Zealand's central bank held its official cash rate t a
record low for a 14th consecutive meeting, pointing to a high
local dollar, low inflation, and the threat of price pressures
from earthquake rebuilding.
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