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Euro Falls on Concern Greek Talks Will Stall; Yen Approaches Postwar High

Thursday, 02 February 2012 | 12:51
The euro weakened versus the yen and the dollar as Greece struggled to reach an agreement with bondholders on cutting the nation’s debt burden, stoking concern Europe’s crisis will deepen.
The common currency fell against 13 of its 16 major counterparts as Spanish bonds declined after the nation sold debt today. The yen rose to within 1 percent of a postwar high against the dollar, prompting speculation Japan will intervene to limit the currency’s gains. The euro briefly erased losses after Chinese Premier Wen Jiabao said his nation supports European efforts to stabilize the 17-nation currency.
“There is a growing fatigue in the market over the Greek deal,” said Neil Jones, head of European hedge-fund sales at Mizuho Corporate Bank Ltd. in London. “For weeks we’ve been hearing a deal is imminent and the market went risk-on yesterday in expectation there was going to be an agreement. This has failed to materialize and I sense the market is becoming a bit weary with the euro.”
The euro weakened 0.3 percent to 99.98 yen at 6:19 a.m. in New York after rising 0.5 percent yesterday. The common currency fell 0.2 percent to $1.3132. The yen strengthened 0.1 percent to 76.14 per dollar after earlier rising to 76.06, approaching the postwar high of 75.35 set on Oct. 31.
Greece and its creditors are locked in discussions over a debt-swap deal for the nation. The bondholders last week lowered their demands for an average coupon on the new 30-year debt they would receive to as little as 3.6 percent from 4.25 percent after European officials demanded they take steeper losses, people familiar with the matter said at the time.
Euro Vulnerable
“Potential vulnerability could come if the announcement is delayed,” BNP analysts led by Steven Saywell, London-based head of foreign-exchange strategy for Europe, wrote in a research note to clients.
Spain sold 4.56 billion euros of debt due in 2015, 2016 and 2017, just surpassing its target of 4.5 billion euros. That compares with a 6.61 billion-euro sale on Jan. 19, which was well above the target of 4.5 billion euros. The Spanish 10-year bond yield climbed eight basis points to 4.93 percent.
The euro briefly reversed losses after China’s Wen said the nation is still researching the best way to participate in the European Financial Stability Facility. He spoke at a briefing with German Chancellor Angela Merkel in Beijing.
Japanese Finance Minister Jun Azumi said he “can’t overlook” speculative moves in the foreign-exchange market and is ready take “decisive” actions if necessary. The Japanese ministry sold the yen on Oct. 31 on concern its advance to a record will hurt earnings at exporters.
Worst Loss
Sharp Corp., Japan’s largest maker of LCD panels, yesterday forecast its worst annual loss since its founding a century ago, with its president saying exporting is “nearly impossible” with the strong yen.
“If the dollar-yen falls quickly then the Ministry of Finance might decide to intervene again,” said You-Na Park, a foreign-exchange strategist at Commerzbank AG in Frankfurt. “Until then we will hear continued verbal intervention since the yen is quite strong.”
The yen has gained 6 percent over the past six months, the second-best performance among the 10 developed-nation currencies tracked by the Bloomberg Correlation-Weighted Indexes. The dollar rose 6.2 percent, and the euro dropped 2.3 percent.
The dollar may weaken a further 1.5 percent against the yen after breaching a key trading level, Karen Jones, head of fixed- income, commodity and currency technical analysis at Commerzbank AG in London AG said, citing trading patterns.
“Dollar-yen has eroded the key Fibonacci retracement at 76.20,” she wrote in an e-mailed report. “This leaves the market on the defensive and refocuses attention back to the 75.31 low and potentially psychological support at 75.”
Source: Bloomberg
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