Dollar retains gains, weak German data checks euro

[Manuelfx]

The dollar held gains against most major currencies on Friday after Moody's downgraded 15 major banks and worries about global growth pushed investors to the safe-haven greenback.

The euro was subdued, holding above it lowest levels in more than a week against the dollar, after grim German business sentiment data reminded investors that Europe's largest economy was also struggling due to the region's debt crisis.

German business sentiment fell for a second successive month in June to its lowest in more than two years, reinforcing indications given by this week's ZEW and factory surveys that the economy was losing momentum.

Weak euro zone data and rising borrowing costs for peripheral countries will add pressure on the European Central Bank to cut interest rates or expand liquidity operations. That prospect is likely to keep the euro under pressure.

"If the general flow of data out of the euro zone continues to be as bad as it has been recently then the bias is still to the downside for euro/dollar," said Adam Cole, global head of FX strategy at RBC Capital Markets.

The euro was at $1.2550, well below a one-month peak of $1.2748 set on Monday, having hit a session low of $1.2519 on trading platform EBS on Friday. Traders said Asian sovereign investors were buying near the day's lows after macro funds sold.

They cited stop-loss orders below $1.2510 and said a decisive break of $1.2520 could open the way for a test of $1.2288, the near two-year low struck on June 1.

The dollar index was flat on the day at 82.310, having risen to 82.465, its highest since June 13.

The index was on track for its biggest weekly gain since early May, having staged its biggest rally in more than three months on Thursday after surveys of business activity from China to the euro zone and the United States darkened the outlook for the world economy.

Adding to the gloom, Moody's on Thursday cut the credit ratings of 15 global banks, including JPMorgan and Morgan Stanley.

"I'm sitting on the sidelines - very low risk on the whole compared to what we would normally use," said Pierre Lequeux, head of currency management at Aviva Investors in London.

"The big question mark out there is over what is going to come out of Europe. Are we going to see some progress?"

reuters

[Craigfx]

I think that the big players, meaning banks and institutions, have made their decisions regarding their action on the Euro in the foreseen future. Nobody believes that Europe can make it through this rough debt crisis, which is getting more and more severe in spite the attempts of the ECB & IMF. Therefore, they are getting rid of Euro positions and concentrating on non-European currencies, (even GBP & CHF are falling these days). So from my point of view, nothing can stop the Euro from sliding to 1.20, as I am quite sure that we are going to see the Euro around 1.15-1.58 by the end of the year.

[timbrown]

I agree that the EUR will be under pressure for some time however I dont think that hit will hit 1.10. The reality is that there will still likely be allot of support from governments as there will be too much to looses if it drops to these levels.