Tuesday, July 12, 2011

Market Morning Overview - July 12, 2011

Previous session overview

The euro fell sharply in Asia after newly elected IMF Managing Director Christine Lagarde appeared cautious about a second bailout package for Greece, making comments that swept away earlier gains following euro-zone finance ministers' efforts to calm the markets and prevent the European debt crisis from spreading to Spain and possibly Italy.

The euro tumbled on the news, breaking through key stop losses to hit a four-month low of USD1.3932, compared with a high of USD1.4063 after the euro-zone finance minister meeting. 

At 0330 GMT, the euro was at USD1.3963 from USD1.4032 late Monday in New York.

Against the yen, the euro fell to JPY111.67, its lowest since March 18. In early afternoon trading in Tokyo it was at JPY111.86 from JPY112.56 late Monday in New York.

The yen was generally higher, meanwhile, benefiting from its safe-haven status, although this was somewhat blunted by the fact the dollar was also up as investors fled the euro. The dollar was at JPY80.14, compared with JPY80.26 in late New York trade.

Elsewhere, the Swiss franc was also seen as a safe parking space. The euro was at CHF1.1693, after hitting its fresh all-time low of CHF1.1660, from CHF1.1711 late Monday in New York. The dollar was at CHF0.8377 from CHF0.8357. The U.K. pound was at USD1.5870, its lowest level for five and a half months, from USD1.5907. 

The ICE Dollar Index, which tracks the dollar against a basket of currencies, was at 76.263, after rising to a three-and-a-half-month high of 76.370, from 75.986. 

The Australian dollar pushed sharply lower Tuesday as renewed fears Europe's debt crisis could spread to Italy and Spain heightened risk aversion. At 0615 GMT, the Australian dollar was at USD1.0600, down from USD1.0717 late Monday. Against the Japanese yen, the Australian dollar was at JPY84.72, down from JPY86.55.

Market expectation

The USDJPY drops below the key level of JPY80.00 as a major Japanese security house's European branch is selling the pair as it might get a good amount of orders from non-Japanese clients, dealers said. The pair is at JPY79.94, with an initial support tipped at JPY79.75. If that level is broken, a slide to JPY79.50 will be possible dealers say.

Traders said that the next support level for EURUSD would be USD1.3900, just below the 200-day moving average. If that level is breached, the euro's downside could open to USD1.3500 in the mid-term, said traders.

Market participants are focusing on any development on European sovereign debt issues at the Economic and Financial Affairs Council later in the day.

European stocks are set to drop at the open Tuesday, as fears the European debt crisis is spreading to Italy continue to escalate, pushing the euro currency to a four-month nadir against the dollar.