Daily Forex Outlook: Euro (EUR) Unsurprisingly Slumps with No Deal on Greece

on Nov 21, 2012

The euro and the yen, this week’s usual suspects, both declined on November 21, with the lack of a deal on Greece predictably dragging the single currency down. The yen, which was boosted on November 20 by the Bank of Japan’s decision to hold off on monetary easing, slumped after the leader of the opposition and probable next prime minister as of December, Shinzo Abe, said that his party would pursue further stimulus.

**Euro Weakens with European Finance Ministers Failing to Agree**
On November 21, Reuters reported that the single currency declined about 0.5 percent to $1.2748, and was headed for a two-month low of $1.2661 with Eurozone ministers failing to agree on a deal on Greece after more than 11 hours of discussion. “It’s been a bumpy road when it comes to the Eurozone,” points out Chu Moon Sung, fund manager at Shinhan BNP Paribas Asset Management Co, as quoted by Bloomberg. “This should create uncertainty for a while and temper risk appetite a bit, though it won’t mean a downward trend sets in.”

Reuters in turn quotes Minori Uchida, chief FX strategist at the Bank of Tokyo-Mitsubishi UFJ as saying that the Eurozone would eventually release the money, given that finance ministers have already agreed on a two-year extension of Greece’s budget targets. “But testing further upside seems difficult for the euro,” adds Mr Uchida.
**Greek Woes Weighing on Risk Assets**

The euro, however, was not the only currency to suffer on account of Greek concerns on Wednesday, with the failure of Eurozone ministers to reach an agreement tempering appetite for higher-yielding assets. Bloomberg reports that the Australian dollar declined 0.4 percent versus the greenback to $1.0351, and 0.2 percent against the yen to ¥84.71. The New Zealand dollar also weakened 0.4 percent against the US dollar and 0.2 percent versus the yen, to 81.37 cents and ¥66.60, respectively.

!m[Yen (JPY) Suffers From Renewed Easing Speculation](/uploads/story/864/thumbs/pic1_inline.png)The Canadian dollar, which was boosted by prospects of becoming a recognised reserve currency, as indicated by the International Monetary Fund, declined to 99.68 cents per US dollar. “We’re very much range-bound today after yesterday’s rally,” notes David Bradley, director of foreign-exchange trading at Scotia Capital Inc, as quoted by Bloomberg. “I wouldn’t be surprised by a little Canadian dollar weakness as risk assets wind down before the US Thanksgiving holiday.”

**Shinzo Abe Comments Send Yen Plunging**
The yen, which took a breath on Tuesday after the BOJ refrained from further easing, slid again on renewed stimulus speculation. Reuters reports that the US dollar rose as high as ¥81.975, its strongest level since early April.
On November 21, Shinzo Abe, the leader of the Liberal Democratic Party, which is expected to win the election in December, commented that his party would pursue monetary easing by the BOJ. “We would proceed with a new growth strategy to stimulate the economy, and to correct a prolonged yen rise and deflation,” noted Mr Abe, as quoted by Reuters. “We would also seek monetary easing exceeding the scale of the anti-deflation measures taken when we were in power.”
Some analysts, however, note that the yen may be over-sold in the short-term and see Japan’s currency recovering. “Abe now has few other things left to say about monetary policy. It’s about the time the power of his magic runs out,” points out Daisuke Uno, chief strategist at Sumitomo Mitsui Banking Corp, as quoted by Reuters, adding that the yen’s slump may have run its course by Thanksgiving.


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