Euro buckling under speculative sales as yen strengthens

By Wayne Cole

SYDNEY (BestGrowthStock) – The euro was manhandled to multi-week lows in Asia on Tuesday as the loss of key technical support led speculators to short the currency in the hope of forcing stop-loss sales against both the yen and the dollar.

With Wall Street ending flat and little data out of the U.S., dealers said the move was not about risk aversion but more about making money.

“The euro looks the most vulnerable technically right and people suspect there’s a whole lot of stops not far under current levels,” said a trader at a bank in Sydney.

“So some investment banks are dumping it with the aim of triggering forced sales and making a profit. There’s nothing fundamental about it,” the trader added.

The pressure pushed the euro down to a six-week low of $1.2633 in Asian trade, from $1.2661 late in New York, where it was finding support.

Bears were targeting $1.2605, the 50 percent retracement of the euro’s rise from a four-year low of $1.1876 in June to its August peak of $1.3334. A break here would open the way to at least $1.2520 and then $1.2479, daily lows from July.

The euro was also looking vulnerable against the yen having fallen to an eight-week trough of 107.48 yen. That left it dangerously close to the crucial June low of 107.30 yen and a break there would take it to territory not seen since late 2001.

Dealers said there was much talk of stop-loss sell orders under 107.00 which if triggered would likely drag the euro down across the board while sending the yen broadly higher.

The dollar was already down at 85.10 yen, having backed away from a 85.68 high on Monday after the much-hyped call between Japan’s Prime Minister and the head of the Bank of Japan failed to even cover intervention.

The dollar has support at various daily lows from 85.04 to 84.87 and 84.72, the latter being a 15-year trough and a huge psychological bulwark.

The U.S. currency is likely to be tested later in the day when data on U.S. existing home sales are expected to show a drop of around 12 percent in July, underlining the weakness of the housing market.

“A fall to 4.65 million sales will draw increasing comparisons to the record lows of 4.53 million recorded in November ’08 and again in Jan ’09,” noted analysts at RBC Capital Markets.

Also due is the Richmond Fed manufacturing index, a series usually ignored in normal times.

“But we are far from a normal environment with every US data release being scrutinized given the risk of a double-dip scenario,” noted RBC in a note to clients.

The Australian dollar was hovering around $0.8900 on Tuesday, having bounced as high as $0.8983 on Monday from a $0.8833 low. That was considered a resilient performance given the country had yet to discover who its new government would be after Saturday’s election delivered a hung parliament.

While votes are still being counted, the weekend election looks certain to leave no one party with a majority leaving them to try and win the backing from a handful of independents.

The independents will meet Tuesday to swap ideas but it could take a few days yet before the government takes shape.

Investors have been largely unfazed so far since both parties are expected to remain fiscally conservative and return the budget to a surplus by 2012/13.

(Editing by Balazs Koranyi)

Euro buckling under speculative sales as yen strengthens