FOREX-Euro falls for third straight day on debt woes

* Euro falls for third straight day as debt fears swirl

* Dollar dips below 81.00 yen but recovers

* Risk trade may face reversal as year winds down
(Updates prices, adds comment, detail)

By Steven C. Johnson

NEW YORK, Nov 9 (BestGrowthStock) – The euro struggled for a third
straight session on Tuesday, swinging from gains to losses as
investors worried about Irish and Portuguese debt and hedged
sizable bets against the U.S. dollar.

Heavy Asian and Middle Eastern buying helped lift the euro
off a $1.3823 session low, traders said, but it stalled below
$1.40 as investors worried that peripheral euro zone countries
may struggle in coming months to finance their deficits.

The euro last changed hands at $1.3873 (EUR=: ), down 0.4
percent. Traders said an earlier slide below the 76.4 percent
retracement of a recent rally that peaked last week near $1.43
suggested it could fall as far as $1.3697 in the days ahead.

“The rebound into the $1.40s was probably a bit too rich
for the euro. I don’t see much point holding it above there,”
said Andrew Wilkinson, analyst at Interactive Brokers Group.

The euro hit its recent high after the U.S. Federal Reserve
said it would buy $600 billion of Treasuries by mid-2011 to
lower interest rates and reinvigorate a sluggish economy.

While that has pushed U.S. bond yields lower and dulled the
appeal of dollar investments, Wilkinson said it may boost U.S.
growth in 2011, leaving markets to focus on the budget problems
in euro zone countries such as Ireland and Portugal.

“I don’t think those fears are overblown,” he said.

The cost of protecting government debt against default in
Ireland and Portugal has risen in the past week, although it
eased ahead of a Portuguese bond auction. [ID:nLDE6A8169]

Irish debt came under pressure this week on fear the
government won’t be able to cut spending as much as planned
next year, which could complicate efforts to sell fresh debt.

(For a column on euro zone debt see [ID:nLDE6A71VY]: ).

A Chinese credit rating agency Tuesday cut its U.S. rating,
citing doubts about the U.S. ability to repay its debts, though
the move had little impact on the dollar. The major ratings
agencies still give the United States the top rating of AAA,
although some have warned about pressures from the rising debt
burden on the rating’s longer-term outlook.


Greek, Irish bond yield spread

G20 battle lines:

Basel III; rule reshaping:

Gold price performance:

Trade, currency tensions simmer pre-G20 [ID:nSGE6A801L]



The euro also fell 0.4 percent to 112.44 yen (EURJPY=: )
while the dollar lost 0.1 percent to 81.10 yen (JPY=: ).

A pullback in risk-taking sentiment after China said it
would strictly manage company short-term foreign debt quotas
contributed to yen gains, traders said. [ID:nBGN9ME62H].

Sterling also fell 0.6 percent to $1.6050 (GBP=D4: ), with
traders citing heavy selling from “a U.S. investment house,”
while the Australian dollar was flat at $1.0120 (AUD=D4: ), still
near a 28-year high at $1.0183.

Low interest rates in developed countries have stoked
demand for higher-yielding currencies and assets from
fast-growing emerging market economies.

Emerging governments say this causes inflation in their
economies, and some have tried to stem foreign money inflows.

Analysts said that means investors should be wary of a
sudden pullback in high-yielding emerging market assets.

Traders said some macro accounts and commodity trading
advisers, who are short-term players, were already closing
their long euro and short dollar forward and futures positions
ahead of their book closing at the end of this month or next.

“The ‘risk-on’ trade has come so far since the end of
August. It could have more to go, but I’m skeptical when you’ve
got the Australian and Canadian dollars at par with the U.S.
and Asian leaders saying they won’t stand for continued inflows
of hot money,” he said. “At some point, something will crack.”

Such a pullback in risk occurred last November, and
Citigroup technical strategists said the a similar “momentum
divergence” on dollar index (Read more about the global trade. ) charts suggests a rerun of that
move may be in store.

The index (.DXY: ) was up 0.2 percent Tuesday at 77.190, but
Citi said charts are “highlighting the risk of a bounce,
possibly as far as 79.31, the 200-day moving average.”
(Additional reporting by Tamawa Desai in London; Editing by
Kenneth Barry)

FOREX-Euro falls for third straight day on debt woes