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FOREX-Euro at over 2-yr low vs dollar on euro zone data, outlook
July 24, 2012 / 4:13 PM / 5 years ago

FOREX-Euro at over 2-yr low vs dollar on euro zone data, outlook

* German, euro zone PMI data weaker, dims euro outlook
    * Moody's changes German rating outlook to negative
    * Troika visits Athens to relaunch economic plan
    * Spain bailout fears grow as yields stay elevated

    By Gertrude Chavez-Dreyfuss
    NEW YORK, July 24 (Reuters) - The euro fell to a more than
two-year low against the dollar on Tuesday as weak euro zone
data and a dimmer outlook for the region's strongest economies
from Moody's further clouded the prospects for the common
    Germany's purchasing managers index showed both the
manufacturing and services sector shrinking more than expected
in July. The equivalent French manufacturing survey was also
well below forecasts. 
    In the United States, manufacturing expanded at its slowest
pace since late 2010, hobbled by weak overseas
    The data came a day after Moody's revised its outlook for
Germany, the Netherlands and Luxembourg to negative, warning
that Europe's top-rated countries may have to increase support
for indebted states such as Spain and Italy. 
    "The continuing deluge of negative euro-related news has
restrained the single currency's upside potential, leaving it
vulnerable to further depreciation," Ravi Bharadwaj, pricing and
market analyst at Western Union Business Solutions in
    It doesn't help, he added, that "euro zone public officials
have persistently acted like deer in the headlights when facing
the region's extraordinary credit strains."
     Tommy Molloy, chief dealer, at FX Solutions in Ridgewood,
New Jersey, was more concerned about the negative outlook on the
euro zone's stronger economies, which  has dire implications.
     "It is underlining the fact that whatever resolution for
Europe -- whether Greece exits or stays in the euro, giving up
sovereignty, but facing the prospect of being eternally bailed
out, will ultimately undermine the stronger members of the euro
zone," Molloy said. 
    Other analysts said worries that more Spanish regions will
follow Valencia and request financial aid from Madrid would keep
Spanish bond yields high and encourage investors to sell the
    Spain was forced to pay higher yields on short-term debt at
a sale on Tuesday while Spanish borrowing costs remained at
levels which analysts say are unsustainable in the long term.
     In midday trading, the euro fell to $1.2057, its
weakest level since June 2010. It was last at $1.2067, down 0.4
percent on the day. 
    Traders said the euro's slide to two year lows midday was
prompted by comments by Reuters sources that Greece could miss
debt reduction targets outlined in the country's bailout deal.
    BNP Paribas said given steep declines in the euro versus the
dollar, its indicators are flagging a "strong buy signal" on the
pair, which has been deeply undervalued. Euro/dollar's fair
value, based on BNP's estimates, is at $1.2420.
    The euro zone's common currency got only a brief lift
earlier after data showed China's manufacturing output grew at
its fastest pace in nine months, with the overall trend for the
currency remaining negative and global growth worries still
    Traders said the euro had support at an options barrier at
$1.2050 and below that at the psychological level of $1.2000.
Below there the next target would be the 2010 low at $1.1876.
    PMI data showed private sector activity in the euro zone as
a whole shrank for a sixth successive month, which data
collector Markit said was consistent with a quarterly GDP fall
of 0.6 percent.
    U.S. manufacturing, meanwhile, expanded at its slowest pace
since late 2010, hurt by weak overseas demand for American

    A rate cut or cash injection from the ECB could give
investors even less incentive to hold the euro.
    Since the ECB cut interest rates earlier this month the euro
has fallen heavily against a range of currencies, including
those which usually fall in times of heightened risk aversion.
    It traded at A$1.1757 against the Australian dollar, near
Monday's record low of A$1.1690, and at C$1.2316
versus the Canadian dollar, also near a record low.
    The euro fell 0.6 percent against the safe-haven yen to
94.45 yen, holding above Monday's low of 94.22 yen,
its lowest in nearly 12 years.
    The near-term outlook for the euro and riskier currencies
will also be influenced by the outcome of a visit to Athens by
inspectors from the troika of international lenders whose
bailout loans are keeping Greece from going bust.
    However, analysts said poor U.S. data may slow the euro's
decline against the dollar even as it falls against other
currencies. Figures on Friday are expected to show growth
slowing in the world's largest economy. 
    The dollar index, which measures its value against a
basket of currencies was up 0.3 percent at 83.918, below
Monday's two-year high of 83.999.

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