FOREX-Ireland's rescue deal lifts euro, risk currencies

Published 11/21/2010, 10:33 PM
Updated 11/21/2010, 10:36 PM
EUR/JPY
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* Euro jumps across the board on Ireland's rescue deal

* Market assessing whether rescue will halt contagion

* Aussie dollar little affected after China tightening

* Dollar/yen eyes key ichimoku cloud resistance

By Hideyuki Sano

TOKYO, Nov 22 (Reuters) - The euro jumped broadly on Monday after Ireland sought an international bailout to tackle its banking and budget crisis, helping remove a major stumbling block that had plagued the single currency for weeks.

Most Asian-Pacific shares rose despite China announcing further credit tightening late on Friday, giving impetus to growth-linked currencies such as the Australian dollar.

The euro climbed about 0.6 percent to $1.3761, tackling a cluster of resistance in the $1.3750/70 area, including $1.3766, a 38.2% retracement of its Nov 4-18 fall.

A sustained break should open a test of the major 1.3825-35 region and ultimately $1.3864, a 50 percent retracement of its earlier fall.

"There is no doubt you'll see a relief rally in the euro. We could see it back up to $1.3860 over the next 24-48 hours," said Richard Grace, chief currency strategist at Commonwealth Bank in Sydney.

The size of Ireland's aid from the European Union and the International Monetary Fund has yet to be decided, but is likely to be smaller than Greece's 110 billion euro bailout last May. One source said it could total 80 to 90 billion euros.

Some market players said uncertainty on the size and conditions of the aid package mean the euro's recovery could be short-lived.

"We'll have to see more details. Germany has been demanding the Irish corporate tax be raised. It's not clear where they stand on this now," said Kimihiko Tomita, head of FX at State Street Global Markets. For more on the row over the country's corporate tax, please see

"Despite a shared currency, euro zone countries have various institutional differences, which investors may come to view as the fundamental problem of the currency," Tomita added.

MORE BAILOUTS?

Traders also said remaining worries over fiscal problems at other euro zone countries, such as Portugal and possibly Spain, will keep niggling at the euro with risk for the euro seen rising whenever market positioning is skewed in favour of the single currency against the U.S. dollar

At the moment, speculator positioning is fairly light as many of them have reduced positions before trade thins down towards the year-end holiday seasons.

Data from the U.S. Commodity Futures Trading Commission showed on Friday that speculators more than halved their euro/dollar long positions to 8,606 contracts last week from 23,283 contracts the week before.

On the other hand, longer-term market players still have positions in favour of the euro, suggesting they have little appetite to increase the euro now, said State Street's Tomita.

"I think the Irish news will lead to a short-term rally in the euro but I doubt real money investors will increase euro long positions just because of this news."

Against the yen, the single currency rose 0.5 percent to 114.75 yen, from 114.19. Some Japanese exporters are selling into the rally, but a sustained break above 115 yen could bring the euro out of its 112-115 range from the past two months.

The euro's rally swept the dollar aside, driving the U.S. dollar index below major support around 78.27-37 to 78.14, down 0.5 percent on the day.

The dollar was a touch lower at 83.40 yen, though its surprise rebound this month from a 15-year low of 80.21 has kept many traders positive about the greenback in the near term.

Considerable attention is on whether the dollar can rise sustainably above the cloud on daily ichimoku chart, now at 83.64. A break there will signal a strong bullish signal.

The Australian dollar tracked the euro higher, rising 0.7 percent to $0.9940 from $0.9862 on Friday, extending gains after having triggered stop-loss orders above $0.99

The Aussie shrugged off further tightening measures in China, Australia's largest export market as most regional shares rose.

Last Friday, China ordered lenders to lock up more of their money at the central bank for a second time in two weeks in a fresh attempt to keep a lid on inflation. "People have come to recognise that this is fine-tuning or necessary policy adjustment by China. It's not necessary negative for the outlook for Australian exports," Commonwealth Bank's Grace added.

The Aussie was still some 3 percent below a 28-year high around $1.0182 set earlier in the month. (Additional reporting by Ian Chua in Sydney and Reuters FX analysts Krishna Kumar in Sydney and Rick Lloyd in Singapore; Editing by Joseph Radford)

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