Foreign Exchange

Friday, June 15, 2012 - 15:21

FXWRAP: Dlr Slips As Data Weighs, Euro Up On Position Paring


NEW YORK, June 15 (MNI) - The dollar was nursing slight losses against the euro and the yen Friday, undercut by a shallow dip in U.S. Treasury yields that followed the release of weaker-than-expected U.S. economic data.

The euro also enjoyed a pre-weekend lift as players rushed to square positions.

Euro-dollar changed hands at $1.2635 in afternoon dealings Friday, the euro in the upper reaches of the day's $1.2592 to 1.2654 U.S. hours range. The euro eased back from its high of the session seen in afternoon dealings.

Dollar-yen meantime changed hands at Y78.71 in afternoon dealings Friday, holding close to its early Y78.74 price. The greenback was stifled inside a negligible Y78.61-80 range during U.S. hours.

Afternoon dealings in both pairs were light, but occasionally whippy, as sporadic order flow swept through illiquid markets.

In those afternoon dealings, euro-dollar had seen a brief spike higher, trading to $1.2654 as offers and stop-loss buy orders atop $1.2650 were targeted and tripped, the euro deflating from that high as the order flow dwindled.

Early in the day, after beginning the day around $1.2610, the euro extended slippage from the overnight high at $1.2647 to mint a fresh low for the day at $1.2592. This was just sufficient to gun stop-loss euro sell orders positioned under $1.2610/00.

As the euro regained its footing atop $1.2600, a batch of weak U.S. economic data inspired a modest rally in U.S. Treasuries, allowing the yield on the benchmark ten-year note to ease to 1.579% by mid-afternoon. This was down from 1.610% early in the day and sufficient to diminish the allure of the dollar.

At the same time, ongoing concerns about the Greek elections this weekend, as well as reports that suggested U.S. and European financial officials had prepared contingency plans in the event the election results further exacerbated the crisis, sent players scurrying to the sidelines. They bought euros to trim short positions, even though that action may seem counter-intuitive.

Traders explain that positions are being pared back not because many think the euro is set for a new burst of strength, but rather because the risk is for a brief relief rally at the start of the week once Greek election results are known.

The bounce will probably be followed by a further euro slide as markets realize little is changed in Greece bar the date, and the potential format of a government -- if one can be formed -- remains uncertain.

Greek voters go the polls Sunday with those polls closing at 7 pm local time, and election results are likely to start trickling out early Monday, just as European markets resume trading.

Traders remind that the last voter polls, released two weeks ago, showed the anti-austerity Syriza Party and the pro-austerity New Democracy party were virtually neck and neck, raising the prospect of an inconclusive outcome -- as was the case in the first general election on May 6.

After no party was able to cobble together a coalition government, new elections were set for June 17.

Helping to underpin the euro on the day, by slightly improving the tone of risk-appetites, was a modest rally in U.S. stocks that had the Dow Jones Industrial Average holding gains of about 75 points.

Dollar-yen meantime had steadied around mid-range after seeing an early, shallow dip to revisit the overnight low at Y78.61 before rebounding.

Overnight, the yen had scored solid gains, the dollar sliding from an overnight high at Y79.51 as a rush to the relative safe haven of the Japanese currency ahead of the weekend.

In that yen rally, a model-driven hedge fund was seen as a large buyer of yen across various currency pairs, and was said to be liquidating yen short positions.

Once that yen buying was done, and after the move lower had triggered stop-loss dollar sell orders below Y79.00, the greenback steadied within a new, lower range.

Traders are mindful that fresh yen strength runs counter to the wishes of Japanese authorities, a notion that was underscored Friday when Japanese prime minister Yoshihiko Noda reportedly said he would explain to his G20 colleagues why a strong yen was out of line with Japan's economic fundamentals.

U.S. economic data released Friday was modestly disappointing on most fronts.

The June University of Michigan preliminary consumer sentiment index dipped to 74.1 vs. 79.3 final May reading, a softer outcome than expected.

June data included; current conditions 82.1 vs 87.2 May, expectations 68.9 vs 74.3.

One-year inflation expectations 3.0%, five-year at 2.9%.

The 12 month economic outlook index was 82 vs 91 in May.

The June New York Fed Empire State Survey fell to 2.29 vs 17.09 in May, a much softer reading than expected.

June data showed drops in orders, shipments, inventories, and in number of employees and workweek.

Prices paid fell to 19.59 vs 37.35 May.

The overall reading was worse than expected, even though analysts expected NY area manufacturing to fall back in line with other regions.

The New York Fed said that the index "indicates that manufacturing activity expanded slightly over the month."

May Industrial Production fell 0.1%, worse than expected, and details were even worse.

April Industrial Production was revised to +1.0% (was +1.1%).

Manufacturing fell 0.4% after +0.7% April reading. Mining +0.9% and Utilities +0.8% made up the gaining areas -- these are volatile and can easily reverse.

Industrial production is up 4.7% year-on-year and that is not a strong gain.

April TICS data showed the monthly net of all net foreign acquisitions of long-term and short-term securities and banking flows was a net outflow of $20.5 billion, made up of private outflows of $23.7 billion and official inflows of $3.2 billion.

Summaries:

EURO SUMMARY: Opened at $1.2610 after $1.2608/47 overnight range.

-- Euro was defensive within a narrow range after giving up overnight gains achieved on speculation of coordinated CB liquidity adds if needed after Greek elections. Early trading saw euro pressure continue as euro-sterling and euro-yen provided weight for losses to $1.2492 as weak stops were hunted. Rebound off low was gradual, driven by softer US yields that followed weak data, but euro reached $1.2630 by the London fixing as intra-day stops were tripped above $1.2620. Euro remained firm into the afternoon, spiking to $1.2654 to flush offers and stops above $1.2650 as stocks remained firm, then settling back to $1.2640 late.

YEN SUMMARY: Opened at Y78.74/99.30 after Y78.61/79.51 and Y99.12/100.35 overnight ranges.

-- Yen had surged overnight as players sought safe-haven ahead of the weekend, the currency also pushed higher by a model account liquidating dollar and euro-yen longs in good size. Dollar rebound off lows stalled at Y78.00 as euro recovered to Y99.48 before a fresh wave of selling returned the dollar to Y78.62 while driving euro-yen to fresh lows for the session at Y99.087 before both regained some poise. Dollar recovery was spotty and amid light flows, regaining Y78.75 around the London fixing as euro-yen returned to the early Y99.48 high before stalling, and both deflated into midday as late safe haven flows weighed. Euro saw a brief lift to Y99.58 before ending near Y99.50, the dollar holding inside Y78.65/70 for the balance of the session.

Dollar Rates in New York Trade:

Eur-Dlr Dlr-Yen Eur-Yen Stg-Dlr Dlr-Swiss 3:09 p.m. Fri 1.2642 78.70 99.48 1.5678 0.9497 1:25 p.m. 1.2642 78.69 99.50 1.5667 0.9498 11:53 a.m. 1.2636 78.65 99.39 1.5653 0.9504 10:08 a.m. 1.2616 78.68 99.26 1.5628 0.9520 7:03 a.m. Fri 1.2610 78.74 99.30 1.5538 0.9522 7:30 a.m. Thu 1.2573 79.26 99.66 1.5535 0.9549 7:30 a.m. Wed 1.2533 79.65 99.83 1.5564 0.9581 7:32 a.m. Tue 1.2503 79.60 99.51 1.5534 0.9906

End 2011 1.2962 76.98 99.70 1.5535 0.9376

--email: dennis@marketnews.com, Tel: (212) 669-6436

** MNI New York Bureau: 212-669-6430 **

[TOPICS: MNEF02,MTABLE]

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