Shaky euro limps off lows; China eyed

By Ian Chua

SYDNEY (BestGrowthStock) – The euro won some reprieve early in Asia on Friday, having come under renewed pressure overnight following Fitch’s downgrade of Ireland’s sovereign rating, while the dollar sagged as strong demand at a 30-year Treasury bond auction knocked yields lower.

The single currency’s outlook remained shaky, however, given persistent concerns about the euro zone debt crisis, with some analysts looking for it to fall below $1.30 in the coming months.

In the very short-term, all eyes are on China, where expectations for an imminent rate hike have grown. This could keep a leash on commodity currencies like the Australian dollar.

Fuelling those expectations, China moved forward the release of November economic data, including the closely watched inflation figures, to Saturday from Monday.

Ahead of that, caution is likely to prevail, keeping currencies in narrow ranges. But thin year-end volumes are likely to make for a choppy session, traders said.

“The euro reacted well to the Fitch news on Ireland and that really tells you that maybe this story is too well known and traders don’t really want to sell it,” said Robert Rennie, chief currency strategist at Westpac Bank.

“So on the day, it’s sell dollars … at least in the Asian session.”

The dollar index (Read more about the global trade. ), which tracks the greenback’s performance against a basket of major currencies, was a touch lower at 80.025, struggling to break through the 80.00-81.50 barrier that capped its November rally.

Fitch became the first ratings agency to strip Ireland of its A credit status on Thursday, slashing it by three notches to BBB+, pointing to the fiscal costs of restructuring.

Ireland’s government will also seek parliamentary approval for a 85 billion euro ($113 billion) IMF/EU rescue package next week.

The euro last traded at $1.3246 compared with $1.3242 late in New York and having pulled off the low of $1.3164 on trading platform EBS.

The next key target is $1.3150, followed by its 200-day moving average around $1.3115. Traders see the euro falling back to its December low of $1.2970 in the coming weeks.

“Short-term risks remain to the downside for the EUR because the peripheral problems remain unresolved. However, longer term, the USD may come under further pressure,” said Paul Robinson, strategist at Barclays Capital.

“We have reduced our 3-month forecast to $1.29 but raised our 12-month forecast to $1.42.”

Against the Japanese currency, the dollar last traded at 83.77 yen, not far off a session low around 83.50 yen plumbed following the Treasury auction, which showed healthy foreign demand for the longer-dated U.S. debt.

Meanwhile, the rally in Aussie dollar paused with the currency last at $0.9846, down from a high of $0.9885 set on Thursday after surprisingly strong jobs data suggested markets were underestimating the risk of a rate hike in the months ahead.

(Additional reporting by Wanfeng Zhou in New York)

Shaky euro limps off lows; China eyed