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Euro slips as Spain bailout expected

Monday, October 15 07:38:25

The euro slipped against the dollar today as traders awaited clarity on when Spain would request a bailout to shore up its battered finances. The euro fell 0.4 percent to $1.2909 and dipped to a low of $1.2891 at one point. One trader said some stop-loss selling in the euro kicked in at levels below $1.2900. Uncertainty about when Madrid would seek financial aid has kept the euro trapped in a range roughly between $1.2800 and $1.3100 since mid-September. Traders said there was some disappointment that Spain did not ask for financial aid over the weekend, but others said Madrid was unlikely to move before regional elections due on Oct. 21. "The euro will likely be capped for now because that is unlikely to happen soon before Spanish regional elections," said Minori Uchida, chief FX analyst at the Bank of Tokyo-Mitsubishi UFJ in Tokyo, referring to a possible aid request by Spain.

However, traders added that euro sellers were likely to cover short positions fairly quickly, as Madrid is expected to eventually ask for help. Euro zone officials have said that Spain could ask for financial aid from the euro zone next month. One major support for the euro comes in near $1.2825, its 200-day moving average. A formal request by Spain for a bailout is widely seen as being positive for the euro, as it would open the way for the European Central Bank to activate its bond-buying programme and help bring down Spanish borrowing costs.

Elsewhere on the forex market, the dollar pushed higher while commodity currencies retreated, with the Australian dollar falling 0.3 percent to $1.0219. "There doesn't seem to be a very clear reason, but there is a risk-off mood in the market," said Satoshi Okagawa, senior global markets analyst for Sumitomo Mitsui Banking Corporation in Singapore. Weakness in Asian equities underscored the cautious market sentiment, he said. "But it's not as if such moves are really picking up a head of steam," Okagawa added.

Data over the weekend showed China's exports grew at roughly twice the rate expected in September, while imports also improved, raising hopes that measures to spur growth in the world's second biggest economy are working. "The better-than-expected upswing in Chinese exports follows similar outcomes for Taiwan and Korea and may be consistent with a bottoming in global manufacturing PMIs in suggesting a possible stabilisation or improvement in global growth," said Shane Oliver, head of investment strategy at AMP Capital. The U.S. dollar, which tends to rise when investor appetite for risky assets falters, held firm. The dollar index, a gauge of the dollar's value against a basket of major currencies, edged up 0.3 percent to 79.915.

The dollar edged up 0.1 percent versus the yen to 78.56 yen . A trader for a major Japanese bank in Singapore said the dollar drew some support from market speculation related to recent media reports that Japanese wireless service provider Softbank Corp was looking to buy about 70 percent of U.S. carrier Sprint Nextel Corp. A source familiar with the matter said Softbank is near a $20 billion deal to acquire control of Sprint. Ever since reports of the possible deal first emerged last week, there has been market talk that it could generate dollar-buying, yen-selling flows in the foreign exchange market, especially given the size of the deal. ( C) Reuters