Euro Rises From Almost 3-Week Low Before ECB Meeting; Yen Climbs

The euro rose for a second day against the dollar, reversing earlier losses, after failing to drop below its 50-day moving average.

The 17-nation currency advanced from almost a three-week low after resisting a decline below the $1.2993. The euro fell earlier before the European Central Bank meets this week amid concern the region’s economy is faltering. The yen strengthened from almost the weakest level in 29 months against the dollar even amid speculation Japan’s government will announce additional stimulus measures.

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Jan. 4 (Bloomberg) -- Adam Cole, head of global currency strategy at Royal Bank of Canada, discusses the U.S. budget deal and efforts by Japanese Prime Minister Shinzo Abe to weaken the yen. He speaks from London with Mark Barton on Bloomberg Television's "Countdown." (Source: Bloomberg)

“The euro simply didn’t break much lower and stayed quite nicely around the $1.30 level,” Sebastien Galy, a senior foreign-exchange strategist at Societe Generale SA in New York, said in a “Bloomberg on the Economy” radio interview with Sara Eisen and Scarlet Fu. “The temptation therefore is to try to push it a little bit higher.”

The euro appreciated 0.2 percent to $1.3101 at 12:24 p.m. New York time after falling earlier to $1.3017. It touched $1.2998 on Jan. 4, the lowest since Dec. 12. The yen gained 0.5 percent to 87.73 per dollar, rising against most major peers, after declining to 88.41 on Jan. 4, the weakest level since July 15, 2010. The Japanese currency advanced 0.2 percent to 114.94 to the euro.

New Zealand’s dollar gained versus the majority of its 16 most-traded counterparts. It rose 0.4 percent to 83.53 U.S. cents and strengthened 0.2 percent to NZ$1.5686 per euro.

The euro has strengthened 1 percent in the past month, according to Bloomberg Correlation-Weighted Indexes, which track 10 developed-nation currencies. New Zealand’s dollar slipped 0.1 percent, the U.S. dollar dropped 0.5 percent, while the yen tumbled 7.1 percent.

Low Volatility

A gauge of price swings remained below average. JPMorgan Chase & Co.’s G7 Volatility Index, based on three-month options for Group of Seven currencies, was at 7.77 percent after touching 7.54 percent on Jan. 3, the lowest level since Dec. 21. The average in 2012 was 9.23 percent.

Lower volatility makes investments in currencies with higher benchmark interest rates more attractive as the risk in such trades is that market moves will erase profits.

Europe’s economy is forecast to shrink 0.1 percent this year after a 0.4 percent drop in 2012, its first contractions since 2009, according to the median estimate of economists surveyed by Bloomberg. The U.S. may grow 2 percent, compared with 2.2 percent in 2012.

More ‘Discerning’

“The risk-on, risk-off dynamic has morphed into a little bit more of a discerning currency-by-currency analysis,” Thomas Molloy, chief dealer at FX Solutions LLC, an online currency- trading company in Saddle River, New Jersey, said in a telephone interview. “There’s a little bit of an expectation that this year, 2013, will be the year that currencies that have good news will have strong currencies, currencies with bad news will have weaker currencies -- rather than the close-your-eyes and risk- on, risk-off trade that we had in 2012.”

ECB President Mario Draghi’s Governing Council, which cut economic and inflation projections last month, will keep its main refinancing rate at a record low of 0.75 percent on Jan. 10, according to the median estimate of 55 economists in a Bloomberg News survey. Five predicted the central bank will reduce the benchmark to 0.5 percent.

“The ECB meeting will be the focus this week,” said Jane Foley, a senior currency strategist at Rabobank International in London. “If there is more speculation about the ECB cutting interest rates, that could undermine the euro against the dollar.”

Citigroup Inc. forecast the ECB will cut rates as soon as February.

‘Cyclical Headwinds’

“Signals by President Draghi that the Governing Council may be moving closer to lowering rates could add to the cyclical headwinds” for the euro, London-based currency strategists Valentin Marinov and Josh O’Byrne, wrote today in a client note.

The yen rallied after falling against the dollar for eight consecutive weeks amid speculationJapan’s newly elected Prime Minister Shinzo Abe will boost efforts to spur growth.

The government will announce 12 trillion yen ($137 billion) of fiscal stimulus this month to boost the nation’s shrinking economy, the Yomiuri newspaper said today. The extra budget for this fiscal year through March will include 5 trillion yen to 6 trillion yen of public-works spending, the newspaper reported, without saying where it obtained its information.

The yen’s 14-day relative strength index versus the dollar dropped to 15.5 on Jan. 4, below the level of 30 that some traders view as a signal an asset has fallen too fast. The index was 22 today.

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Stocks Slip Before Earnings as Dollar Weakens, Yen Gains

Stocks slipped before the start of earnings season, pulling the Standard & Poor’s 500 Index down from a five-year high, and the Dollar Index fell for the first time in four days. European banks rose as regulators eased liquidity rules while Italian bonds slid.

The S&P 500 dropped 0.6 percent to 1,457.79 and the Stoxx Europe 600 Index (SXXP), which closed last week at its highest level since February 2011, fell 0.4 percent at 12:58 p.m. in New York. BNP Paribas SA and Barclays Plc paced ban gains in Europe. The yen advanced against all 16 major peers, adding 0.6 percent versus the U.S. currency, while the Dollar Index retreated from the highest level since November. Treasuries and commodities were little changed.

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Traders work on the floor of the New York Stock Exchange (NYSE). Photographer: Scott Eells/Bloomberg

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Alcoa Inc. will unofficially start the U.S. earnings reporting season after the market closes tomorrow, with analysts predicting 2.9 percent growth in fourth-quarter profit for S&P 500 companies. Photographer: Stephen Morton/bloomberg

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The yen rose 0.4 percent to 87.81 per dollar after touching 88.41 last week, the weakest since July 2010. Photographer: Akio Kon/Bloomberg

Alcoa Inc. (AA) will unofficially start the U.S. earnings reporting season after the market closes tomorrow, with analysts predicting 2.9 percent growth in quarterly profit for S&P 500 companies. European Central Bank President Mario Draghi’s Governing Council will meet Jan. 10 to focus on nursing the euro region back to economic health.

“We’ve come a long way in a very short time,” said Tom Wirth, who helps manage $1.6 billion as senior investment officer for Chemung Canal Trust Co., in Elmira, New York, in a phone interview. “I’m expecting better-than-anticipated earnings. Yet we need to see some consolidation first.”

Market Leaders

Utilities, energy and consumer companies led losses in nine of the 10 main industry groups in the S&P 500 today. Illumina Inc. tumbled 7.3 percent after Roche Holding AG Chairman Franz Humer told a Swiss newspaper that a deal to buy the U.S. genetics company is off the table. Applied Materials Inc., the world’s largest producer of chipmaking equipment, lost 2.1 percent after being downgraded at JPMorgan Chase & Co.

Boeing Co. tumbled 2.1 percent after a 787 Dreamliner operated by Japan Airlines Co. caught fire on the ground this morning at Boston’s Logan International Airport.

Bank of America Corp., the second-biggest U.S. bank by assets, slipped 0.5 percent after agreeing to pay Fannie Mae$3.6 billion to resolve home-loan repurchase claims. The lender will also pay $6.75 billion to repurchase residential mortgages sold to Fannie Mae. The deal will “substantially resolve outstanding claims for compensatory fees” between the two companies, according to the statement.

Earnings at banks and diversified financial companies are forecast by analysts to have grown 28 percent and 71 percent, respectively. Earnings at insurance companies fared the worst among 24 groups, decreasing 48 percent amid claims from Superstorm Sandy, according to analyst estimates compiled by Bloomberg.

Weekly Rally

Stocks surged last week, sending the S&P 500 up 4.6 percent for its biggest gain in 13 months, after U.S. President Barack Obama and lawmakers reached a compromise that averted the package of spending cuts and tax increases known as the fiscal cliff.

Fed Vice Chairman Janet Yellen said on Jan. 5 that communication of policy aims plays a “big role” in supporting the economy now that the central bank’s benchmark interest rate is close to zero. Fed Bank of Philadelphia President Charles Plosser said the same day that the central bank should take the steps necessary to ensure inflation stays near its goal of 2 percent.

Almost two shares fell for each that gained in the Stoxx 600 today as energy and utility companies contributed the most to the decline in the index. A gauge of banks advanced 1.8 percent, trading at a 17-month high, as BNP Paribas climbed 1.9 percent and Barclays increased 3.8 percent.

Basel Rules

Central bankers meeting yesterday in Basel, Switzerland, allowed lenders to use a wider range of assets to meet the so- called liquidity coverage ratio amid warnings the proposal would strangle lending and stifle the economic recovery.

The cost of insuring against default on bank debt fell, with the Markit iTraxx Financial index of credit-default swaps dropping four basis points to 121

Japan’s currency strengthened 0.6 percent to 87.68 yen per dollar after touching 88.41 on Jan. 4, the weakest level since July 2010. The yen’s relative strength index versus the dollar slid to 15.5 on Jan. 4, the least since December 2001 and below the 30 level that traders view as a signal that an asset’s price has fallen too fast. The yen added 0.2 percent against the euro. Europe’s 17-nation currency increased 0.3 percent to $1.3108.

Debt Sales

Italy’s 10-year bond yield rose eight basis points to 4.35 percent and the rate on similar-maturity Spanish debt climbed six basis points to 5.11 percent. Spain plans to sell bonds on Jan. 10 and Italy will auction securities the following day.

Silvio Berlusconi’s People of Liberty party reached an agreement with the Northern League to run together in Italy’s February elections, the former prime minister said today on RTL radio. The Northern League, which served in all three of Berlusconi’s governments, opposed his candidacy for premier.

Benchmark 10-year Treasury yields were little changed at 1.89 percent.

Economists cut their forecasts for Treasury yields in 2013 to the least since Bloomberg began compiling the predictions as jobs data tempered speculation the Federal Reserve will stop buying bonds this year. Ten-year yields will be 2.14 percent by Dec. 31, according to a survey of banks and securities companies as of Jan. 4, with the most recent projections given the heaviest weightings. It’s the lowest level based on Bloomberg data that start in July.

Emerging Markets

The MSCI Emerging Markets Index (MXEF) fell 0.2 percent, after seven straight weeks of gains, the longest stretch since October 2010. Brazil’s Bovespa sank 0.9 percent and India’s Sensex lost 0.5 percent. China’s CSI 300 Index (SHSZ300) advanced 0.5 percent, entering a bull marketafter rallying more than 20 percent from 2012’s low.

The S&P GSCI Index of 24 commodities drifted between gains and losses as coffee, cocoa and gas oil rallied more than 0.9 percent, while lead, natural gas and zinc dropped at least 0.9 percent to lead declines. Oil was little changed at $93.15 a barrel, after gaining 2.5 percent last week. Copper declined for a third day.

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Euro pares losses, trades little changed vs dollar

Jan 7 (Reuters) - The euro pared losses to trade little changed against the dollar on Monday as the New York session began with investors adjusting positions ahead of a European Central Bank policy meeting later in the week.
Analysts said the euro was more likely to remain under pressure as markets refocus on the euro zone's debt crisis with any indication of monetary stimulus or comments on economic weakness seen pushing it lower.
But some investors speculated there was too much bearishness and that if the ECB was not too negative, the euro could rally.
Currency speculators became net buyers of the euro for the first time since August 2011 in the week to Dec. 31, according to data from the Commodity Futures Trading Commission released on Friday.
The euro was last down 0.05 percent at $1.3057, well off the session low of $1.3016.

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