Daily Forex Outlook: Euro (EUR) Slips ahead of ECB Policy Meeting

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on Dec 6, 2012

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Daily Forex Outlook: Euro (EUR) Slips ahead of ECB Policy Meeting

The single currency which on Wednesday reached a seven month high against the dollar, slipped slightly both versus the greenback and the yen on December 6, with investors awaiting the policy meeting of the European Central Bank (ECB). Reuters reports that although the yen advanced against the dollar, analysts expect Japan’s currency to weaken over the next year.

**Euro Loses Ground versus Dollar, Yen**
As reported by Reuters on December 6, the single currency, which rose as high as $1.3127 on Wednesday on the EBS trading platform, was down about 0.1 percent from late US levels. The euro lost ground versus the yen as well, declining 0.2 percent to trade at ¥107.58, after reaching a seven and a half month high of ¥107.95 on Wednesday. “Ahead of the ECB meeting, the dollar and yen are being bought back after the euro’s rise,” noted Teppei Ino, currency analyst at the Bank of Tokyo-Mitsubishi UFJ, as quoted by Reuters.

While the ECB is expected to keep rates on hold at 0.75 at today’s policy meeting, investors are looking for clues about a future rate cut. “The data is clearly suggesting that the ECB is going to have to do something more,” noted Ray Attrill, global co-head of currency strategy at National Australia Bank Ltd (ASX:NAB, PINK:NABZY), as quoted by Bloomberg. “We could get some kind of a hint that rates could be cut at a future meeting. If we get any soundings in that direction from Draghi today, then that could put a little bit of pressure on the euro.”

**Yen up against the Greenback**
Reuters reports that the yen advanced slightly against the dollar, which last stood at ¥82.43, well below its seven and a half month high of ¥82.84 hit in November. The yen’s advance however is seen as limited, with the latest Japanese polls showing that the Liberal Opposition Party (LDP) is on track to secure a majority. LDP’s leader, Shinzo Abe, has called for unlimited yen printing, spurring speculation that pressure on the Bank of Japan for further monetary easing will increase.

“Politically, LDP leader Abe has softened his aggressive stance on monetary policy”, Citigroup (NYSE:C) analysts said, as quoted by Reuters. “However, we remain bearish on JPY over the medium term, and will look to increase our JPY short once positioning looks less stretched.”
**Aussie, Kiwi Advance**
The Australia dollar, which is having a strong week despite the decision of the Reserve Bank of Australia (RBA) to cut rates, jumped against the greenback. Reuters reported that the Aussie hit a session high of $1.0480, to later trade at $1.0464, up about 0.1 percent on the day. The Australian dollar’s upward movement was prompted by figures suggesting that Australia’s jobless rate dropped to a three-month low of 5.2 percent, countering expectations of an increase to 5.5 percent.

!m[Dollar (USD), Yen (JPY) Bought Back](/uploads/story/974/thumbs/pic1_inline.png)Bloomberg reports that the New Zealand dollar, nicknamed the kiwi, reached 82.97 US cents after advancing 0.6 percent on December 5 to 82.88 cents. The kiwi was little changed against Japan’s currency at ¥68.40, after touching ¥68.52, the highest since March 27. The New Zealand dollar benefitted from the decision of the Reserve Bank of New Zealand (RBNZ) to leave its official cash rate unchanged at 2.5 percent. Bloomberg quotes Yuki Sakasai, a foreign-exchange strategist at Barclays Plc (LON:BARC) as noting that the RBNZ was “less dovish than the market had anticipated”.
A Reuters poll indicates that the Aussie and the kiwi are seen as stubbornly resilient in the coming months, mostly on account of a lack of high yielding alternatives.