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FOREX-Euro, dollar fall after US factory data
July 2, 2012 / 7:21 PM / 5 years ago

FOREX-Euro, dollar fall after US factory data

* Euro down vs dollar after surge on Friday
    * US manufacturing report increases risk aversion in NY
session
    * Market players start to question EU summit deal


    NEW YORK, July 2 (Reuters) - The euro fell against the U.S.
dollar on Monday while the greenback fell versus the yen as risk
aversion increased after  data showing U.S. manufacturing
contracted in June for the first time since July 2009. 
    The data was another sign the U.S. economic recovery is
slowing. 
    "It shows that a long-time bright spot for the economy is in
decline and that adds to worries about the fragile state of the
U.S. economy," said Joe Manimbo, market analyst at Western Union
Business Solutions in Washington. "It can also set the stage for
a soft jobs number that will come on Friday."
    Uncertainty over the outlook for a deal to stabilize euro
zone debt markets also troubled investors. Finland and the
Netherlands opposed the use of the euro zone's permanent bailout
fund to buy government bonds in the secondary markets. 
    The stance of the two countries countered positive sentiment
from last week's summit deal in which European leaders decided
that rescue funds would be available to stabilize bond markets.
 
    The dollar was last down 0.36 percent against the yen at
79.48 yen after falling as low as 79.29 yen after the
U.S. data. The euro was last at $1.2580, down 0.62
percent, after falling as low as $1.2567 after the U.S. data.
    Setting the tone for early trading was the Finnish
government's position that the rescue fund's bond buying in 
secondary markets would require unanimous support from member
states. Finland and the Netherlands opposed such a move, casting
doubt on prospects for the plan. 
    Brad Bechtel, managing director at Faros Trading in
Stamford, Connecticut, warned the negative news headlines out of
Europe are likely to persist, keeping uncertainty levels high
and markets jittery. This kind of situation "as always, will
make things even worse," he said.
    Europe will remain in the spotlight with the European
Central Bank expected to ease policy at a meeting this week.
    
    ECB AHEAD 
    The ECB is expected to cut its main refinancing rate by 25
basis points to 0.75 percent on Thursday, with expectations that
the deposit rate it pays banks to park cash overnight may also
be cut, to zero. 
    Some players are hoping the ECB will also announce fresh
stimulus measures to shore up the faltering euro zone economy.
The market will be disappointed if the ECB fails to deliver on
those expectations, analysts said.
    U.S. markets will be closed on Wednesday for the U.S.
Independence Day holiday, which may also lower liquidity the day
before the ECB meeting.  
   "The juxtaposition of a holiday-broken week in the U.S. with
the amount of economic information we are going to receive this
week is making risk-taking extremely dangerous," said Bechtel. 
        
    EUPHORIA FADES
    Monday's trading was in sharp contrast to Friday when the 
euro surged around 1.8 percent against the dollar after leaders
agreed to let Europe's rescue fund inject aid directly into
stricken banks from next year and intervene on bond markets to
support troubled member states.
    But details were sketchy and questions remained whether,
even if authorized by member states to do so, the rescue fund
would have enough money to provide a firewall from a debt
contagion that could ensnare larger peripheral economies. 
    Many market players said the euro's rally could fade,
especially if peripheral bond yields started to climb back
toward recent euro-era highs. Italian and Spanish 10-year yields
slipped on Monday but their funding costs remain high in
historical terms.
    "The optimism will fade as the week unfolds and if yields in
Italy and Spain increase there will be further pressure on
euro/dollar," said Lutz Karpowitz, FX strategist at Commerzbank
in London.
    "It (the deal) is just spending more money from donor
countries and receiving more money from debt-ridden countries.
This will lead to political friction and is not a long-term
solution."
    The single currency fell 1 percent against the yen to 99.98
yen. On Friday, the euro posted its biggest one-day
rise against the yen since March 2011. There was talk of
profit-taking in the euro against the yen by hedge funds,
traders said.

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