When investors begin to lose confidence in a country’s ability to pay off its debt, they demand higher interest rates on the country’s bonds to cover the risk of loaning it money. When its borrowing costs rise, an ailing country has an even harder time raising money to pay off the debts it has. Borrowing costs are up this year in European countries considered more vulnerable as investors look to put their money somewhere they think is safer. Growing into its role as a global economic power, China is pledging to buy billions of dollars' worth of bonds in European governments to help restore confidence in the debt-ridden region. The move is the latest evidence that the giant Asian nation is developing ties with strategically important trading partners and expanding its influence in areas where it has long played a minor role. In what European media have dubbed a charm offensive, Chinese Vice Premier Li Keqiang was all smiles on a recent swing through the continent, assuring the Germans that their economy was complementary to China's and praising the Spanish as good friends. He also dispensed plenty of largess, promising to aid the souring economies of Spain and Portugal — pledges that were seen as more than just goodwill. AAPL AIG BAC Bear Stearns, Ben Bernanke, BSC C China, copper, DELL, DIS, DJIA, Dollar, DOW, FDIC, FED, FNM, FXI, GM, gold, GOOG, GRSGS, inflation ,IPO, NOC oil, silverSIRI, YHOO, Yuan
1 comment:
(Reuters) - The euro headed for its best week in more than 1-1/2 years on Friday and could extend gains next week after successful securities auctions by indebted euro zone members calmed fears of a credit crisis in the region.
The euro was last at $1.3374, up 3.8 percent this week and edging closer to key resistance at $1.35. Analysts said the recovery could continue in the near term, though gains above $1.35 may be difficult given nervousness over large debt supply from weaker euro zone economies in 2011.
For now, demand for Portuguese and Spanish debt and expectations for higher euro zone interest rates have eradicated most concerns of fiscal woes on the euro zone periphery.
Add in bullish technical factors and few see the euro ending the recent rally.
"We're at a bit of a pivot point but the same momentum continues," said Fabian Eliasson, vice president of currency sales at Mizuho Corporate Bank in New York. "There is positive momentum from several countries' strong bond auctions. We'd need to see something new come out" to change direction.
Adding support is the $199 billion jump in China's foreign exchange reserves in the final three months last year, the most ever for a quarter. [ID:nTOE70C02C] That means China needs to put upwards of $15 billion a month into European assets just to maintain its current portfolio allocation.
China has been working for years to diversify its official currency reserves, which now sit at a record $2.85 trillion, and the euro has been the primary alternative to the dollar, taking an estimated 25 percent, or about $710 billion.
"The floor is in for the euro," said Douglas Borthwick, a managing director for trading at Faros Trading LLC, a forex execution firm in Stamford, Connecticut, who sees the euro between $1.33 and $1.35 in the week ahead and a rally to $1.50 by year end.
That is in sharp contrast to his view for the U.S. dollar, which is again mired by talk of the United States losing its triple-A credit rating because of rising national debt.
"The dollar is on a continued weakening bias, correcting from an overbought top," said Borthwick.
Technical factors will begin flashing green for the euro rally if the euro/dollar can manage a close above the 50-day simple moving average, Borthwick said. That level is currently $1.3310, according to Reuters data,
January 10 saw the 50-day simple moving average move below the 100-day simple moving average, which would argue for the euro going lower, said Borthwick.
Indeed model accounts, those that use trading formulas for buy and sell signals, are shorting the euro based on that signal, but a rise in the 50-day again above the 100-day would push model accounts to go long the euro, prompting more buying, he said.
The euro's gains against the dollar this week pushed it back above the 200-day simple moving average, the third test of that support since November 29, using EBS data. To technical analysts, the $1.3071 level is becoming major support.
The euro received another buy signal on Thursday when the 12-day and 26-day moving average convergence/divergence line crossed above the nine-day signal line. The MACD is used in technical analysis as an indicator of short-term momentum by focussing on exponential moving averages and closing prices.
Any short covering, when investors buy the euro to cover bets against it if it rises, is likely to further boost the euro.
Post a Comment