Euro falls after Alcoa, Slovak vote

TOKYO: The euro fell broadly on Wednesday, reversing its recent corrective rally made on hopes for a solution to the deb
12 Oct, 2011

Tokyo exporters took the opportunity to sell the euro against the yen after the common currency had gained nearly 4 percent in the week, piling pressure on euro/dollar. Option barriers reported at 105 yen and $1.37 in the respective pairs also helped halt the recent rally.

Bickering between the US and China over a bill aimed at pressing Beijing to lift the value of the yuan and a fall in Alcoa Inc shares after its earnings weighed on equities, which have a strong correlation with the Australian dollar.

That, and selling emerging from Japanese life insurers in Aussie/yen, saw the Australian dollar fall 0.8 percent versus the greenback to last trade at $0.9873 , testing strong technical support in the $0.9880-50 area.

The euro last changed hands 0.3 percent lower at $1.3593 . Stop losses were cited around $1.3710, while a pivotal technical support area at the 50 percent retracement of the $1.3346-1.3698 rally loomed around $1.3520-25.

Against the yen, the euro was down 0.2 percent at 104.24 , off a 10-year low hit last week at 100.77 yen.

"A few risk factors emerged overnight prompting investors to sell riskier assets, but key support levels so far remain intact, indicating that investors are waiting for more news from Europe," said Teppei Ino, a currency analyst at the Bank of Tokyo-Mitsubishi UFJ.

Slovakia is the only euro zone country yet to approve the plan. But a re-vote expected later this week is likely to succeed with the main opposition party set to support the measure now that the government has resigned.

Analysts stressed that euro price moves will likely be subdued before the details of a comprehensive strategy to fight the debt crisis are revealed at an EU summit on Oct. 23.

The EU, International Monetary Fund and European Central Bank -- known as the troika -- said an 8 billion euro loan tranche to Greece should be paid in early November but they warned Athens it had made only patchy progress in meeting the terms of a bailout agreed in May last year.

CHINA BILL

China urged the Obama administration and Congress to stymie the US yuan bill, warning the legislation passed by the Senate could upset efforts to prop up the global economy.

The legislation is a protectionist step that "gravely violates World Trade Organisation rules," Foreign Ministry spokesman Ma Zhaoxu said after the US Senate approved it and sent it to House of Representatives to debate further.

Its fate, considering cautious comments from senior Republicans and no clear stance taken by the US President Barack Obama, remains unclear.

The dollar index gained to 77.822 on the day, after having skidded from an 8-1/2 month peak of 79.838 set on Oct. 4. Versus the Japanese currency, the dollar was at 76.71 , trading in an ever-tightening range.

The danger of yen-weakening intervention by Japanese authorities has seen the dollar/yen pair stuck in a narrow band off a record low around 75.94 yen set in August.

Investors are waiting for minutes of the Federal Reserve's latest policy meeting due later on Wednesday. Barclays Capital analysts expect the minutes to show most policymakers continued to expect a rebound in growth in H2 relative to H1, but that risks remain skewed to the downside.

"We will also be paying close attention to how the committee's views on the inflation outlook have evolved," they wrote in a note.

"The majority continues to judge that spare capacity will put downward pressure on core inflation, but several members are likely to share our view that spare capacity is limited and will, therefore, be less convinced that core inflation will subside.

Copyright Reuters, 2011

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