Euro Bears Gloat, Bounce Goes Begging

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Tuesday, October 31, 2000 | Print this story

Euro Bears Gloat, Bounce Goes Begging

By WAYNE COLE, Reuters

TOKYO--The euro was back on the defensive on Tuesday as yet another chance to bounce went begging, leaving bears to gloat and supporters feeling betrayed.

Gifted some soft U.S. economic growth data, the euro had strode boldly ahead to one-week highs at $0.8530 on Monday, while the dollar retreated on a broad front. But U.S. investors were not buying any of it and instead took heart from strong U.S. income data and a big rally in blue-chip stocks to harry the euro all the way back to 84 cents. Dealers in Asia, through painful experience, had never trusted the rally in the first place and were only too happy to pressure it further to $0.8391 in late trade here.

Many suspected that those Europeans who had chased the euro higher would have little choice but to throw in the towel, so threatening rumored stop-loss offers beneath $0.8380 support. "The euro is far from a firm footing," said Karl Broeker, head of Treasury at Landesbank Baden-Wuerttenberg in Singapore. "Having seen it rally through $0.8460/80 resistance only to fall back that quickly, clearly shows the market is still not comfortable buying the euro," he said. FLIGHTY EURO, STEADFAST DOLLAR The euro's capricious ways only highlighted the steadfast record of the dollar, which promptly gained on sterling and the Swiss franc and touched record highs on the Australian dollar. But it eased slightly on the yen to 108.80 yen as Japanese exporter offers at 109.20 and heavy demand for the yen against the euro prevented a break of recent ranges.

The euro sagged all the way to 91.28 yen from a high around 92.60 on Monday as its failure to sustain this latest rally encouraged yet more hedging by Japanese investors. That retreat was all the more bitter as the yen has plenty of troubles of its own. Data out on Tuesday showed an unexpected rise in Japan's unemployment rate to 4.7 percent and the fifth straight monthly fall in housing starts. The Bank of Japan, at least, was upbeat on growth, projecting gross domestic product growth of 1.9 to 2.3 percent for the 2000/2001 fiscal year, its first ever official forecasts for GDP. But it also listed numerous dangers to the outlook, including the weakness of domestic equities, the euro, oil prices, domestic bankruptcies and a slowdown in global info-tech demand. The euro did derive some comfort from confirmation that the U.N.-Iraqi sanction committee is to allow Baghdad to receive oil-export payments in euros instead of dollars.

The change is due to take place on November 6 and with Iraq selling around $60 million of crude daily, the amounts involved were not insignificant, traders said.

On the other hand, the euro is perceived as vulnerable to rising Middle East tensions and signs there were grim with Israeli gunships attacking offices of Palestinian President Yasser Arafat's Fatah faction on Monday. AMERICANS PUT FAITH IN AMERICA But over and above all this was the market's lack of faith in the single currency and its confidence in the United states and the Federal Reserve, said dealers. This was, not surprisingly, strongest among U.S. investors and was one reason why any gains the euro made in European time evaporate once the New York market got the currency to itself. "In large part that's because no one is more downbeat on the eurozone and more upbeat about the U.S. economy than the Americans," said one unabashed U.S. bank dealer. "And, hey, that's where the money is." These tran-Atlantic differences were illustrated by the reaction to Friday's moderately soft U.S. GDP data. In Europe many officials, and some in the market, played it up as confirmation the United States was finally slowing to Europe's level. German Finance Minister Hans Eichel went so far as to claim that Europe was now growing faster than the United States. Analysts suggested he may have had his figures mixed up since measured on the same year-to basis U.S. growth was 5.3 percent in the third quarter compared to 3.7 percent for the eurozone in second quarter. In any case, U.S. markets interpreted the GDP numbers as just further evidence of the long hoped-for soft landing and actually a reason to be more confident in investing there. In this regard, Monday's strong 1.1 percent rise in U.S. personal income and a hefty 2.3 percent rally in the Dow Jones Industrials index were perfectly timed to reinforce the bias of investors toward the dollar and against the euro. Currency bid prices at 0633 GMT. All data taken from Reuters with percent change calculated from the daily U.S. close at 2130 GMT.

http://www.latimes.com/wires/wbusiness/20001031/tCB00a7716.html

-- Martin Thompson (mthom1927@aol.com), October 31, 2000


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