* Euro/dollar may decline towards $1.25 by year-end
* Euro zone debt crisis, Korean conflict to lift US dollar
* U.S. nonfarm payrolls report also in focus
(Adds comment, updates prices, changes byline)
By Wanfeng Zhou
NEW YORK, Nov 26 (Reuters) - The euro should extend losses against the dollar in the near term after its worst week in over three months on fears Portugal and Spain will be next to need bailouts after Ireland.
Technical charts and option trading also suggest increasing bearishness on the euro. The euro slid to a two-month low at $1.32 on Friday and was down 3.5 percent this week, on pace for its biggest weekly percentage drop since mid-August.
Concerns over a deepening debt crisis in the euro zone and escalating tensions in the Korean peninsula could lift the safe-haven U.S. dollar. The greenback could get an added boost if a key U.S. jobs report next Friday beats expectations.
"The bigger question is will Spain and Portugal remain immune and I would look and say, 'no'," said Greg Salvaggio, vice president of trading at Tempus Consulting in Washington.
"The situation in the euro zone will continue to deteriorate," he said, adding the euro could drop "below $1.30 and perhaps as low as $1.25 by year-end."
The premium investors demand to hold Irish and Spanish government bonds rather than German benchmark Bunds hit new euro lifetime highs on Friday. Portuguese bonds also underperformed after a report said the majority of euro zone states and the European Central Bank were urging Portugal to apply for a bailout. For details, see [ID:nLDE6AP08Y]
European officials said reports Portugal was under pressure to seek a bailout were "absolutely false". Spain on Friday ruled out that it needs help to manage its finances. [ID:nLDE6AP08Y]
Nomura currency strategists Jens Nordvig and Charles St-Arnaud said the outlook on Spain, which accounts for 11.8 percent of euro zone economy, will be a primary driver of the euro in the coming weeks.
"In a scenario where Spanish spreads widen to Portugal's current levels, we see the risk premium on the euro increasing from around 10 percent to above 20 percent, and this could see the euro trade all the way to 1.23 against the U.S. dollar," they wrote to clients. "The big question is whether this is the central case."
BEARISH ON EURO, KOREAN CONFLICT
* Euro zone debt crisis, Korean conflict to lift US dollar
* U.S. nonfarm payrolls report also in focus
(Adds comment, updates prices, changes byline)
By Wanfeng Zhou
NEW YORK, Nov 26 (Reuters) - The euro should extend losses against the dollar in the near term after its worst week in over three months on fears Portugal and Spain will be next to need bailouts after Ireland.
Technical charts and option trading also suggest increasing bearishness on the euro. The euro slid to a two-month low at $1.32 on Friday and was down 3.5 percent this week, on pace for its biggest weekly percentage drop since mid-August.
Concerns over a deepening debt crisis in the euro zone and escalating tensions in the Korean peninsula could lift the safe-haven U.S. dollar. The greenback could get an added boost if a key U.S. jobs report next Friday beats expectations.
"The bigger question is will Spain and Portugal remain immune and I would look and say, 'no'," said Greg Salvaggio, vice president of trading at Tempus Consulting in Washington.
"The situation in the euro zone will continue to deteriorate," he said, adding the euro could drop "below $1.30 and perhaps as low as $1.25 by year-end."
The premium investors demand to hold Irish and Spanish government bonds rather than German benchmark Bunds hit new euro lifetime highs on Friday. Portuguese bonds also underperformed after a report said the majority of euro zone states and the European Central Bank were urging Portugal to apply for a bailout. For details, see [ID:nLDE6AP08Y]
European officials said reports Portugal was under pressure to seek a bailout were "absolutely false". Spain on Friday ruled out that it needs help to manage its finances. [ID:nLDE6AP08Y]
Nomura currency strategists Jens Nordvig and Charles St-Arnaud said the outlook on Spain, which accounts for 11.8 percent of euro zone economy, will be a primary driver of the euro in the coming weeks.
"In a scenario where Spanish spreads widen to Portugal's current levels, we see the risk premium on the euro increasing from around 10 percent to above 20 percent, and this could see the euro trade all the way to 1.23 against the U.S. dollar," they wrote to clients. "The big question is whether this is the central case."
BEARISH ON EURO, KOREAN CONFLICT
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