FOREX-Euro slips from 14-mth high as weak German data weighs

Thu Jan 31, 2013 2:55pm IST

* Euro off 14-month high vs dollar
    * German retail sales data and Deutsche Bank results weigh
    * Fed keeps bond-buying stimulus in place


    By Anirban Nag
    LONDON, Jan 31 (Reuters) - The euro slipped on Thursday,
hurt by weak German retail sales data with signs of a U.S.
slowdown also pushing some investors to seek refuge in more
liquid currencies like the dollar and the yen.
    The euro's losses were expected to be limited however given
that the European Central Bank (ECB) is withdrawing some of its
unconventional monetary setting that has been in place while the
U.S. Federal Reserve and the Bank of Japan are printing more
money that should drive down the value of their currencies.
    That is likely to help the euro, despite lingering worries
about peripheral euro zone countries which are struggling amid
tough austerity measures.  
    The U.S. Federal Reserve pledged on Wednesday to keep its
stimulus policy in place, saying the measures were needed to
lower unemployment, and a senior Bank of Japan official on
Thursday signalled more stimulus would be forthcoming if needed.
  
    The euro edged 0.1 percent lower to $1.3555. A huge
fourth-quarter loss reported by Deutsche Bank also
weighed on the single currency, keeping it off Wednesday's high
of $1.3588, its strongest level since November 2011. Despite
Thursday's dip, the euro has gained nearly 3 percent this month.
    Traders said a reported option barrier at $1.3600 was safe
for the time being with stop loss buy orders lurking above that.
Bids were cited at below $1.3530 and option expiries at $1.3550.
    The euro was 0.3 percent lower against the yen at 123.20 yen
, off a 33-month peak of 123.87 yen set on Wednesday.
The single currency has gained 7.6 percent against the yen this
month.
    "We had weak German retail sales data which is weighing on
the euro," said Chris Turner, head FX strategist at ING, after
German retail sales fell at their fastest pace in more than
three years in December. 
    "But it's only a dip and given the sharp move we have had,
this was bound to happen. As long as the ECB does not express
concern about the currency's strength, it will be tough for the
trend to turn."
    European politicians have ramped up talk of a 'currency war'
as the euro has been the biggest beneficiary of the yen's and
the dollar's weakness. But ECB policymakers have maintained a
view that the euro is well within its long-term averages,
reflecting little desire to curb its recent strength.
    The euro has also benefited from renewed inflows into euro
zone assets as risks of a break-up subsided and after ECB chief
Mario Draghi sounded optimistic about a recovery.
    "Euro/dollar we now think will rise to $1.37. The euro
crosses are also likely to benefit from the return of exiled
capital that left the euro zone," said Gareth Berry, G10 FX
strategist at UBS in Singapore. 
    "Europe is not out of the crisis yet, there is still lots of
uncertainty out there, but there has been enough stabilisation
to encourage some investors to return," he said.
    
     YEN RECOVERS
     The dollar slipped 0.2 percent to 90.88 yen, having hit a
2-1/2 year high of 91.41 yen on Wednesday, its strongest
level versus the yen since June 2010. 
     The dollar's dip came after data on Wednesday showed the
U.S. economy unexpectedly contracted in the fourth quarter.
Still, a lot of that weakness came from a plunge in defence
spending, suggesting the underlying fundamentals were not as bad
as the headline figures indicated. 
    Traders said the market focus would now turn to the U.S.
employment report on Friday for the latest take on the health of
the world's biggest economy. 
    Despite the wobbles facing the U.S. economy, analysts are
optimistic that the dollar would keep rising against the yen,
given Japanese politicians are piling on pressure on the BoJ to
ease monetary policy aggressively in coming months.
    "Yen depreciation has more room to go, in our view. We now
look for the yen to depreciate to 96 and 100 versus the dollar
in six months and 12 months, respectively," analysts at Barclays
Capital said in a client note.
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