Forex Market Update: Euro Steady against Dollar despite Weak German Ifo Reading

How is the forex market? In spite of unexpectedly weak German Ifo Index, which is a gauge in business sentiment, the euro remained steady against the US dollar after hitting to a two-week low in the previous session. Nonetheless, the euro is expected to remain vulnerable in coming days as currency strategists expect the European Central Bank (ECB) to slash benchmark interest rate, next month.



The euro was trading at $1.3002 during European trading hours, having fallen as low as $1.2973 following the release of dismal PMI data on Tuesday.

Already the policymakers from the ECB have hinted at more cuts in prime lending rate in case economic indicators warrant it. The benchmark rate in the euro zone is at record low level of 0.75%.

The weaker-than-expected German Ifo Index comes just a day after when Markit’s flash Composite PMI data showed that business activities in Europe’s largest economy contracted in April.

Commenting over possible rate cuts by the ECB, a trader for a Japanese Bank in Bangkok said to Reuters, “If the Ifo is weak that could provide further data-based validation for the recent speculation that there might be a rate cut in May”.

However, some strategists expect that euro might not fall as market participants have already factored in that the ECB could cut rates to boost lending.

“Markets have moved around to the view that the ECB will cut rates. We're looking for a cut in May. So to some extent the euro is pricing that in,” said Mitul Kotecha, a Hong Kong-based head of global foreign exchange strategy for Credit Agricole, according to Reuters

Evasion of forex dues can now land you in jail

Willful evasion of forex duties may now land you in jail. The Enforcement Directorate (ED), for the first time in 14 years, has recently arrested a Surat-based diamond trader for "wilfully" evading forex duty penalties to the tune of Rs 3.99 lakh under section 14 of the Foreign Exchange Management Act (FEMA), a civil law where arrest and prison procedures are never heard of.


"This is the first time since 1999 that the agency has arrested and sent to jail someone in a case of foreign exchange violations. More such orders against wilful and chronic defaulters are in the offing across the country," a senior official dealing with FEMA cases said. The FEMA, enacted in 1999, is implemented by the ED in the country and as compared to the stringent anti-money laundering law (the Prevention of Money Laundering Act) the forex contravention cases are treated as civil in nature.

The ED action on the trader, in Gujarat's Surat, came in a case where the diamond trader illegally transferred USD 60,000 abroad in alleged violation of FEMA laws. The competent authority of the FEMA sent the businessman to three months in jail after the ED made a case saying that a number of FEMA penalty notices were not honoured by the trader despite having financial resources to do so. The agency has now decided to take help of this rarely used section 14 of the Act in order to ensure compliance in these cases and reduce the pendency of these violations piling up over the years.

The section 14 of FEMA stipulates that "if any person fails to make full payment of the penalty imposed on him under section 13 within a period of 90 days from the date on which the notice for payment of such penalty is served on him, he shall be liable to civil imprisonment." The top brass of the agency has also directed the agency's offices in the country to select such chronic default cases of forex duty violations and take strict action. "However, a defaulter under these provisions is only sent to a civil prison for a maximum of six months. The civil prisoner does not have many restrictions and strict regime in the jail as compared to a criminal prisoner. The defaulter can settle the amount and walk free before the expiry of the jail term," an official explained.

FOREX : Euro steady, stuck near bottom of recent range

1 Italian debt yields resume rise after auction

3 Euro support near $1.3569, Ichimoku cloud bottom

SINGAPORE, Nov 15 (Reuters) :
                                The euro held steady against the dollar on Tuesday, but was stuck near the bottom of its range so far this month as new governments in Italy and Greece failed to ease fears about the euro-zone sovereign debt crisis.

The euro had gained some reprieve in recent sessions as a change in leadership in Italy and Greece eased worries of political uncertainty and stirred hopes for progress in tackling Europe's debt problems.

But such optimism was tempered when Italian and Spanish government bonds came under renewed selling pressure on Monday. A drop in European equities, including banking shares, also did the euro no favours.

While day-to-day fluctuations in the euro and investor risk appetite are hard to predict, the single currency is likely to remain under pressure versus the dollar and the yen in coming weeks, said Junya Tanase, chief FX strategist for J.P.Morgan in Tokyo.

"There is no doubt that Europe is nowhere near a situation that can be viewed with optimism," Tanase said.

"The bias is toward risk-off with both the dollar and the yen rising, while cross/yen pairs including euro/yen are likely to come under downward pressure," he added.

The euro held steady at $1.3628, struggling to regain ground after dipping 0.8 percent the previous day. The euro is now at the lower end of its trading band since late October of $1.3484 to $1.4248.

Possible support for the euro lies near $1.3569, the bottom of the cloud on the daily Ichimoku chart, a popular form of technical analysis.

The single currency held steady versus the yen at 105.07 yen , stuck near a one-month low around 104.74 yen hit last week.

Italy paid a euro-era high price to sell five-year bonds on Monday, just a day after former European Commissioner Mario Monti was named to lead the country -- a move that had been hoped would help restore investor confidence.

The dollar held steady against the yen at 77.11 yen, hovering near Monday's two-week low around 76.81 yen, which was the lowest since Japan's massive yen-selling intervention on Oct. 31.

FOREX - Euro slips versus dlr before Italian bond auction

1 Euro slips as markets cautious ahead of Italy auction

2 Rebound possible on optimism over new Italy, Greece govts

3 Dlr/yen edges to lowest since Oct. 31 intervention


LONDON, Nov 14 (Reuters) -
                          The euro slipped against the dollar on Monday with nerves ahead of an Italian bond auction undermining initial optimisim about the prospect of crisis-fighting reforms under new governments in Italy and Greece.

On Sunday, Italy's president appointed former European Commissioner Mario Monti to head a new government charged with implementing urgent reforms to end a crisis that has endangered the whole euro zone.

Italy's 3 billion euro auction of five-year bonds was expected to find buyers, but at a record high yield which underscores the challenges the country's new technocratic government faces to restore market confidence.

The common currency slipped 0.3 percent to $1.3710 early in the London session as caution weighed ahead of the bond sale. Traders cited sizeable options expiries at $1.3750. Earlier the currency had risen as high as $1.3811 with near term resistance near its two-week high of around $1.3870 and offers from Asian sovereign investors cited above that.

"We stepped back from the brink on Thursday and Friday and the news from Italy just adds to that. The fact that we have these technocratic governments in place is a positive, in that they'll press toward the sort of austerity measures required," said Simon Derrick, head of currency research at Bank of New York Mellon.

In Greece, new prime minister Lucas Papademos begins the tough task of rebuilding Greece's credibility with financial markets by pushing through tough austerity measures needed to stave off bankruptcy.

"After a bit of consolidation we'll have the euro testing back up, and we'll be having a look at $1.3850 again in the not- too-distant-future," Derrick said.

Nevertheless after Italy's 10-year bond yield soared above 7 percent last week, to levels seen as unsustainable, markets remain nervous over the consequences of more pressure on the euro zone's largest government bond market.

Some traders said that for the euro to post more gains, it would have to break past decent resistance at around $1.3870.

YEN STRENGTH GROWING

The euro was also lower against the yen, trading at 105.62 yen. The U.S. dollar eased against the yen to 76.99 yen, its lowest since Japan's Oct. 31 intervention.

Appearing to support Japan's recent currency intervention aimed at curbing excess volatility, the head of the International Monetary Fund said on Saturday the move was in line with the spirit of the G7 and G20.

But traders said interventions, particularly unilateral actions such as Japan's latest moves, are unlikely to have a long-term impact and the dollar is likely to slip on any signs of problems in the U.S. economy.

"The dollar could fall to around 76 yen this week and to 72 yen by the end of year, said Hideki Amikura, forex chief at Nominal Trust Banking, noting that the U.S. yield curve is likely to flatten further given that the Federal Reserve has committed itself to keeping rates low until 2013.

"If the U.S. PPI (producer price index) is weak, that suggests recent strength in U.S. retail sales is due largely to price cuts, not strong demand," he said.

The dollar index stood at 77.116, well off last week's high of 78.165. The Australian dollar fell to $1.0265, well of the session high of $1.0351.

FOREX-Euro dips; dollar/yen spikes briefly on stops

1 Middle East bids, fund repatriation support euro

2 Euro support near $1.3569, Ichimoku cloud bottom

3 Euro/yen hovers near critical support area

4 Dollar/yen spikes briefly on stops, large-lot flow

SINGAPORE, Nov 15 (Reuters) -
                              The euro dipped on Tuesday, stuck near the bottom of a recent trading range after a rise in Italian and Spanish bond yields underscored the challenges facing Europe as it tries to contain the region's debt crisis.

The dollar briefly spiked higher against the yen but later gave back most of its gains, and traders said the move was likely caused by a large-lot flow and stop-loss buying, and was probably not intervention.

The euro had gained some reprieve in recent sessions as a change in leadership in Italy and Greece eased worries of political uncertainty and stirred hopes for progress in tackling Europe's debt problems.

But such optimism was tempered when Italian and Spanish government bonds came under renewed selling pressure on Monday. A drop in European equities, including banking shares, also did the euro no favorite.

While day-to-day fluctuations in the euro and investor risk appetite are hard to predict, the single currency is likely to remain under pressure versus the dollar and the yen in coming weeks, said Junya Tanase, chief FX strategist for J.P. Morgan in Tokyo.

"There is no doubt that Europe is nowhere near a situation that can be viewed with optimism," Tanase said.

"The bias is toward risk-off with both the dollar and the yen rising, while cross/yen pairs including euro/yen are likely to come under downward pressure," he added.

The euro fell 0.1 percent to $1.3618, staying on the defensive after slipping 0.8 percent the previous day. The euro is now near the lower end of its trading band since late October of $1.3484 to $1.4248.

Possible support for the euro lies near $1.3569, the bottom of the cloud on the daily Ichimoku chart, a popular form of technical analysis.

While persistent worries over the euro zone's debt problems were likely to leave the euro vulnerable, one trader said the single currency was likely to be supported below $1.36 due to bids from Middle Eastern sovereign players and European players' fund repatriation ahead of their year-end book closings.

The single currency dipped 0.1 percent versus the yen to 104.97 yen, stuck near a one-month low around 104.74 yen hit last week.

Euro/yen is hovering near a critical support area of 104.70 yen to 104.90 yen, where a number of support levels are clustered. A 61.8 percent retracement of the euro's rally versus the yen in October stands near 104.90 yen, while its lows in the past few weeks converge around 104.70 to 104.80 yen.

A break below that support area could open way for a test of Ichimoku cloud bottom, which now comes in near 104.12 yen, said Teppei Ino, currency analyst at Bank of Tokyo-Mitsubishi UFJ in Tokyo.

EUROPEAN BOND YIELDS

Yields at a 3 billion euro five-year Italian bond sale on Monday hit euro-era highs of 6.29 percent , just a day after former European Commissioner Mario Monti was named to lead the country -- a move that had been hoped would help restore investor confidence.

Italian bond yields rose in the secondary market after the auction, while the 10-year Spanish government bond yield climbed above 6 percent for the first time since August.

More euro zone debt auctions are coming this week, with Spain aiming to sell between 3 billion euros ($4.1 billion) and 4 billion euros of 10-year bonds on Thursday, while France will auction two-year notes on Thursday at a time its triple-A sovereign status is being put under scrutiny given the significant exposure of its banks to Italian, Spanish and Greek debt.

The dollar held steady against the yen at 77.09 yen.

Earlier, the dollar jumped around 40 pips to an intraday high of 77.51 yen. But it quickly gave back its gains, and the dollar is now back near Monday's two-week low around 76.82 yen, the lowest level since Japan's massive yen-selling intervention on Oct. 31.

Market players are bracing for the possibility of further yen-selling intervention, especially if the yen starts to rise sharply.

Brazil Stocks Gain as Economic Growth Boosts Commodity Outlook

Dec. 9 (Bloomberg) -- Brazilian stocks rebounded, led by commodity producers, on speculation a growing economy will sustain demand for raw materials.

Usinas Siderurgicas de Minas Gerais SA paced gains for steelmakers after Brazil’s gross domestic product unexpectedly jumped 6.8 percent in the third quarter. Petroleo Brasileiro SA rose 3.3 percent after the company said it may be able to produce oil from its pre-salt fields for less than $40 a barrel. Positivo Informatica SA soared the most ever on speculation Dell Inc. and China’s Lenovo Group Ltd. may bid for the company.

The GDP number “reflects what we’ve been hearing from the companies, that, activity has slowed down but it hasn’t slowed down that much and some sectors haven’t slowed on at all,” said ,William Landers who manages $3 billion in Latin American equities at BlackRock Inc. in Plainsboro, New Jersey. “If you talk to the banks, they’re still lending; if you talk to the steel companies, they’re not shutting down completely; if you talk to the retailers, they’re still selling on credit.”

Brazil’s Bovespa Index rose for a third day, gaining 0.6 percent to 38,522.76 at 12:11 p.m. New York time. The index fell as much as 1.3 percent earlier. Mexico’s Bolsa climbed 1.4 percent and Chile’s Ipsa surged 1.8 percent.

Usiminas rose 4 percent to 26.65 reais.

Petrobras jumped 68 centavos to 20.89 reais.

“We’re optimistic that we can produce oil at a cost below $40 a barrel in pilot production in the pre-salt oil fields,” said Theodore M. Helms , investor relations executive manager, said during an investor conference in New York. The so-called pre-salt areas are underwater oil fields beneath a layer of salt.

Positivo rose 53 percent to 9.45 reias. It had gained as much as 126 percent earlier.

Lenovo Chief Executive Officer said today he expects personal-computer companies to consolidate “soon” because of the global slump in stock prices, adding to speculation that Lenovo may be interested in Positivo. Amelio said there is “no news to share on” the possible plans.

“Besides the fact Lenovo’s CEO said he sees more industry consolidation, the shares are really cheap now compared with the company’s prospects,” said , who manages the equivalent of $2.4 billion as head of equities at Unibanco Asset Management.

Gold ends higher, strong physical demand seen

NEW YORK/LONDON (Reuters) - Gold futures ended slightly higher on Tuesday as weaker stock markets bolstered bullion's appeal as an alternative investment.

"The gold market has been moving sideways, waiting for further development in the financial markets. As the stock market shows signs of prosperity, gold buyers will become more aggressive in returning," said George Nickas, commodity broker at FC Stone.

U.S. stocks turned lower sharply after rallying in the previous two sessions, as investors mulled whether recent gains have staying power. .N

Spot gold was at $773.25 at 2:42 p.m. EST, up 0.3 percent from Monday's close of $771.30.

U.S. gold for February delivery settled up $4.90 at $774.20 an ounce on the COMEX division of the New York Mercantile Exchange.

Gold held onto gains in spite of a sharp drop of oil, the other main external driver of gold. U.S. crude futures ended down nearly $2 at $42.07 per barrel.

Falling crude prices can undermine confidence in commodities as an asset class, and dent interest in gold as a hedge against oil-led inflation.

Meanwhile, market talk of a gold sale by the International Monetary Fund failed to dampen sentiment.

In April, the IMF had agreed to put its finances on sounder footing by selling some of its gold and investing in other asset classes such as bonds or equities.

However, approval of the U.S. Congress will be needed before any gold sales could begin.

PHYSICAL DEMAND SEEN SUPPORTIVE

In addition, resilient physical gold demand should boost prices in the near term, analysts said.

Thom Calandra, natural resources analyst and chief columnist for Stockhouse.com, said that high gold leasing rates and the lofty premium of gold coins and bars underscored strong physical buying.

"That demand is not currently reflected in the futures prices and other paper prices," Calandra said.

Among the other precious metals, platinum slipped a touch as investors worried slowing economic activity would hit demand for the metal, which is chiefly used to make catalytic converters.