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The euro dropped Tuesday after falling overnight.
Written by article default Wednesday, 02 June 2010 10:24
Market OverviewThe euro dropped Tuesday after falling overnight to a fresh four-year low as investors feared the euro-zone sovereign-debt crisis would infect the region's banking system and derail a global recovery. Worse-than-expected Chinese economic data stoked fears the recovery could be on fragile footing, leading investors strongly out of riskier currencies considered closely tied to global growth, such as the Australian dollar, which lost more than 1.5% against the greenback. The Canadian dollar also fell more than 0.75% against the U.S. dollar even after the Bank of Canada became the first central bank among the Group of Seven leading industrial nations to increase key interest rates. A central bank increasing key rates would usually support a currency, but Tuesday's flight to assets considered safer dented the Canadian dollar's prospects. The ICE Dollar Index, which tracks the greenback against a trade-weighted basket of currencies, was at 86.953 from 86.508. The euro dropped overnight to its lowest level in four years, at USD1.2110, as fears the euro-zone sovereign debt crisis would lead to considerable losses for the region's banks teamed with worse-than-expected Chinese economic data to spark concerns about the global recovery. Despite the pullback in assets considered riskier, the U.K. pound found some support from suggestions that Prudential's planned USD35.5 billion takeover of AIG's largest Asian life-insurance unit is falling apart. News of the initial deal had hurt sterling, given the size of dollar purchases that were likely to be involved.
Market expectation
The euro dipped to a new downtrend low of USD1.2110, but current trading just above USD1.2134 support suggests a move up to USD1.2232. A move below USD1.2134, on the other hand, would be the signal for a move down to USD1.2063. Take profit at USD1.2110, Note that the Dollar Index ticked up earlier to a new uptrend high of 87.473, just below 87.806, the technical breakout point on the long term charts. But it has pulled back nearly to 87.000, said traders. Analysts said worries France could see a downgrade are also affecting the tone after French Budget Minister Francois Baroin said the country faced a challenge in maintaining its AAA credit rating. The political uncertainty surrounding Japan's Prime Minister Yukio Hatoyama following his failure to keep his promise to move a U.S. military base out of Okinawa could help put pressure on the yen and thus give a small kick start to the exporters, said analysts.