Euro Down on Greece Stalemate

Currency declines for eighth day as Greek politicians struggle to form new government.

The euro weakened for an eighth day against the dollar as Greek politicians struggled to form a new government, fueling concern the nation will leave Europe’s currency union.

The 17-nation currency extended its run of losses to the longest since September 2008 as Spain’s 10-year bond yields climbed back above 6 percent. The pound fell for a second day against the dollar as a report showed U.K. retail sales fell the most in more than a year. The dollar and yen rose against most of their major counterparts on increased demand for haven assets. Canada’s dollar dropped to a three-month low as oil declined for a sixth day.

“It’s a function of the uncertainty in Greece and the credit stress in Spain,” said Boris Schlossberg, director of research at online currency trader GFT Forex in New York. “It appears to be absolutely clear that the Greeks are not going to do any more austerity. If the Spanish yield goes to 7 percent, it’s going to be getting into the red zone -- a warning zone for the euro.”

The euro fell 0.5 percent to $1.2941 at 9:09 a.m. New York time, having dropped 2.4 percent since April 27. The shared currency weakened 0.9 percent to 102.99 yen after touching 102.89, the lowest since Feb. 16. The yen gained 0.4 percent to 79.56 per dollar.

The MSCI World Index of equities fell 0.6 percent and crude oil lost 1.2 percent to $95.83 a barrel.

The Canadian dollar fell to C$1.0063, the lowest level since Jan. 30, before trading down 0.6 percent at C$1.0050. Oil is Canada’s largest export.

Alexis Tsipras, whose Syriza party placed second in the Greek elections on May 6, said he would forge ahead with plans to form a coalition government of left-wing parties after he was handed the mandate by President Karolos Papoulias. Syriza is opposed to Greece’s European Union-led financial bailout.

Antonis Samaras of New Democracy and Evangelos Venizelos, of Pasok, rejected the ultimatum from Tsipras to send a letter to the European Union revoking their written pledges to implement austerity measures by the time he meets them today. Another election may be held in June if politicians fail to form a governing coalition.

Greece may “again be the focal point of a new round of risk aversion and this would certainly be something that would not be good for the euro,” said Ulrich Leuchtmann, head of currency strategy at Commerzbank AG in Frankfurt. “This is the most important driver.”

 

Euro Forecasts

The euro will probably end the year around current levels as investors buy German bonds as a haven, lending support to the currency amid outflows from weaker countries, Leuchtmann said. The median estimate of analysts’ predictions compiled by Bloomberg is for the euro to end 2012 at $1.30.

The euro has weakened 3.6 percent over the past six months, the worst performance among the 10 developed-nation currencies tracked by Bloomberg Correlation-Weighted Indexes. The dollar rose 1.4 percent, and the yen dropped 1.1 percent.

The yen strengthened against all of it 16 major counterparts, and the dollar advanced versus all but the yen, amid speculation the global economy is stalling, boosting demand for safer assets.

Growth in German exports slowed to 0.9 percent in March from 1.5 percent in February, the Federal Statistics Office in Wiesbaden said today. U.S. initial jobless claims climbed by 4,000 to 369,000 last week, according to a Bloomberg News survey before the Labor Department report tomorrow.

The dollar strengthened for an eighth day against the Swiss franc, climbing 0.5 percent to 92.79 centimes. The franc was little changed at 1.2010 per euro.

Sterling slipped 0.4 percent to $1.6092 and was little changed at 80.49 pence per euro before the Bank of England’s Monetary Policy Committee decides tomorrow whether to add more stimulus to its existing 325 billion pounds ($485 billion) of bond purchases.

Sales at U.K. stores open at least 12 months, measured by value, declined 3.3 percent from a year earlier, the London-based British Retail Consortium said today. That’s the biggest monthly drop since March 2011. Including stores open less than 12 months, sales decreased 1 percent.

Australia’s dollar weakened for a second day versus its U.S. counterpart after Prime Minister Julia Gillard said returning the budget to surplus will give the central bank “maximum room to move” in setting interest rates.

 

Cash Surplus

The nation will have an underlying cash surplus of A$1.54 billion ($1.55 billion) in the 12 months to June 30, 2013, Treasurer Wayne Swan said in the annual budget speech yesterday. Expenditures are forecast to decline to A$364.2 billion next year, the first drop in figures dating back to 1971.

The so-called Aussie weakened 0.8 percent to $1.0043 after touching $1.0033, the lowest since Dec. 20, the last time it traded at parity with the greenback.

UBS AG recommended investors sell the euro at $1.3075, targeting $1.2850 with a stop-loss order at $1.3165, Richard Adcock, head of fixed-income technical strategy in London, wrote in a note yesterday. A stop loss is a preset instruction to exit a trade at a certain level in case a bet goes the wrong way.

The euro may fall to its January low of $1.2628 should the currency decline below the 62 percent retracement of the January-to-March advance at $1.2954, Adcock wrote, citing Fibonacci analysis.

Fibonacci analysis is based on the theory that prices advance or decline by certain percentages after reaching a new high or low.

 

 

Bloomberg News

 

 

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