* Euro hits five-week low, eyes Oct (KOSDAQ: 039200.KQ - news) . trough around $1.3140
* ECB's buying Italian bonds fails to bring down yields
* More euro losses seen as crisis spreads to core Europe (Chicago Options: ^REURUSD - news) (Updates prices, adds comment, details, changes dateline, previous LONDON)
NEW YORK (Frankfurt: A0DKRK - news) , Nov 16 (Reuters) - The euro fell for a third straight session against the dollar to hit a five-week low on Wednesday as rising French and Italian borrowing costs heightened worries about contagion in the euro zone debt crisis.
The European Central Bank's buying of Italian and Spanish bonds brought only temporarily relief and yields resumed climbing after the intervention stopped as investors doubted how much the ECB can buy to support the bond market.
Analysts expect the euro to remain under pressure in the near term as troubles in the periphery spread to core nations in Europe and as policymakers remain behind the curve in finding a solution to the region's debt problems.
"The outlook for the euro is worsening gradually because clearly there's been contagion in the euro zone debt markets," said Samarjit Shankar, managing director of global FX strategy at BNY Mellon in Boston.
The euro fell 0.3 percent to $1.3493 , having earlier dropped as low as $1.3427 on Reuters data, the weakest level since Oct. 10.
The common currency also came under pressure after Italian bank Unicredit (MDD: UCG.MDD - news) said it would ask the ECB to extend its access to funding, stoking concerns about the health of euro zone banks. [ID:nL5E7MG1ZJ]
"We are likely to stay in a fairly stressed environment until banks and asset managers have sufficiently deleveraged," said Sebastien Galy, currency strategist at Societe Generale (Paris: FR0000130809 - news) in London. "It continues to suggest that euro/dollar is steadily heading for the $1.3140 October low."
Traders said the euro's latest decline was driven by selling from macro funds. Against the yen, the single currency slipped 0.3 percent to 103.93 yen, having fallen as low as 103.37 yen, its lowest since Oct. 10.
ECB purchases initially pushed Italian yields down to around 6.83 percent and sparked a rebound in the euro. But yields later climbed back above 7 percent, a level widely deemed unsustainable.
In a sign that the debt crisis is spreading to the core, the yield spread between French 10-year government bonds over German Bunds rose to its highest since the euro's launch in 1999. France is the second-largest economy in the euro zone.
ECB ROLE
France and Germany, Europe's two central powers, clashed over whether the European Central Bank should intervene to halt the euro zone's accelerating debt crisis as modest bond purchases failed to stop the rout.
A French government spokeswoman said the ECB's role is to ensure the stability of the euro, but also the financial stability of Europe. But German Chancellor Angela Merkel made clear Berlin would resist pressure for the central bank to take a bigger role in resolving the debt crisis. [ID:nL5E7MG3AP]
In Italy, Mario Monti formed a new technocrat government on Wednesday, but analysts were cautious as to whether the move would be enough to calm financial markets.
"A new government is coming in Italy but there's still no improvement on bond markets so it's hard to see what can be done in the short term to reverse this," said Lutz Karpowitz, currency strategist at Commerzbank (Other OTC: CRZBF.PK - news) in Frankfurt.
Some in the market see further downside for the euro as funding strains among European banks are evident with euro/dollar three-month cross currency basis swap spreads widening to a level not seen since late 2008.
Against the yen, the dollar slipped 0.1 percent to 76.99 , while the dollar rose 0.3 percent to 78.132 against a basket of currencies . (Additional reporting by Naomi Tajitsu in London; Editing by Dan Grebler)
Of course, there is a lot more than just this to controlling risk, but these two points are highly important when it comes to minimizing the risk fx trading platform presents you each day. Remember to stick to your foreign currency trading methodology and don't let negative factors such as a losing streak impair your ability to think methodologically.
ReplyDelete