Dollar firm after surge, euro’s woes persist

By Anirban Nag

SYDNEY (BestGrowthStock) – The U.S. dollar climbed on Friday, having surged in the previous session, as investor anxiety about a deterioration of sovereign debt in Europe led to a sell-off in the euro and growth-linked currencies.

Stocks on Wall Street (.SPX: ), commodities (.CRB: ) were all in the red, while implied volatilities for currencies jumped, reflecting a drastic shift in sentiment against riskier assets. The Australian dollar and the New Zealand kiwi, fell past support levels in the previous session, triggering a wave of stop-loss sales.

Early in Asian trade, the dollar index (Read more about the global trade. ) (.DXY: ) surged past 80 for the first time since mid-July 2009 while the euro fell (Read more about the trembling euro. ) to as low as $1.3716, which was its lowest since May, 2009.

Near-term resistance for the dollar index (Read more about the global trade. ) is seen around the 80.03 level, which marks a 38.2 percent retracement of the fall from 89.62 to 74.17 in 2009.

“The risk-unwind trade has come back in force with the U.S. dollar staging a deeper test of critical medium term resistance levels,” JPMorgan said in a note. “While prices are so far holding, the bearish risks remain intact.”

The dollar pared some of its losses against the yen, inching up to 89.30 yen from 88.91 yen late in New York on Thursday, when it fell more than 2 percent. Traders said Japanese importers and speculators were buying the dollar after the sharp fall on Thursday and to adjust short positions ahead of the U.S. jobs data.

The dollar, had fallen to a seven-week low against the surging yen, weighed down by weaker-than-expected U.S. jobless claims data on Thursday.

Although the weekly jobless report does not directly impact Friday’s non-farm payrolls number, there could be downside risks. Economists are forecasting 5,000 jobs being added to the economy last month, with the market looking at the unemployment rate and possible downward revisions to previous estimates on jobs.

Analysts say the dollar is in an almost a “win-win” situation, especially against the euro, regarding the job numbers.

If the numbers are better-than-expected the market will buy U.S. dollar against the euro and yen with the view that the U.S. economy would recover faster than the other G-3 economies and the Federal Reserve is likely to move sooner than the European Central Bank or the Bank of Japan.

On the other hand, if the numbers disappoint, it will add to the risk unwinding trade currently gripping markets and send the euro lower against the U.S. dollar while the yen would be the big winner.

The Japanese currency tends to be the main gainer when there is a sudden loss of risk appetite as leveraged trades funded in the low-yielding yen are unwound. The yen shed some of its huge gains on the crosses, with the euro inching up from a one-year low of 121.99 yen to around 122.52 yen.

On Thursday, the euro posted its worst day against the yen since November 2008.

The weakness in the euro was partly attributed to widening Greek, Portuguese and Spanish bonds’ yield spreads over German benchmarks.

The single currency was also pressured by comments from European Central Bank President Jean-Claude Trichet that many members of the euro zone will have large and sharply rising fiscal imbalances.

Apart from the U.S. non-farm payrolls which will hog the limelight on Friday, markets will look for the Group of Seven meeting at the arctic Canadian town of Iqaluit at the weekend.

Finance ministers and central bank governors from the world’s richest nations are due to meet and they will touch foreign exchange issues and may bring up the Chinese currency as part of the discussions.

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(Editing by Balazs Koranyi)

Dollar firm after surge, euro’s woes persist