Euro falls from 6-week high on EU summit doubts : The euro slid from a six-week high on Tuesday after the cancellation of a European finance ministers meeting raised doubts an EU summit would deliver a comprehensive plan to contain the region's debt crisis.
With Wednesday's European Union leaders' summit still scheduled to take place, expectations of a broad agreement were tempered by fears any accord could lack details and disappoint markets.
The single euro zone currency earlier fell to New York session lows after a report said the meeting of EU finance ministers was canceled as details of issues to be discussed at the gathering have not been finalized. That was enough to send markets into a tailspin: U.S. stocks and the euro fell, while U.S. Treasuries drew a safe-haven bid.
"We are inclined to believe that the cancellation of the EU Finance Ministers meeting means more delays than progress on euro area talks," said Kathy Lien, director of research at GFT in Jersey City, New Jersey.
"With that in mind, however, there have also been reports that a deal on bank recapitalization and leveraging of the (euro zone rescue fund) is close. We won't know for sure until Wednesday when the EU Summit ends and the press conference is delivered but today's announcement certainly adds a degree of uncertainty in the markets."
In late morning trading, the euro EUR=EBS was last at $1.39022, down 0.2 percent on the day, after earlier falling to $1.38491 on news of the cancellation. The euro also hit $1.39605 earlier in the global session, its highest level since Sept. 8 on trading platform EBS.
The euro also weakened after German Chancellor Angela Merkel said Germany is opposed to a phrase in the European Union summit draft that calls for support of continued European Central Bank non-standard measures, or the bank's purchases of bonds in the secondary market.
The ECB has been buying government debt to check rising borrowing costs for some countries on the periphery of the euro zone, notably Italy and Spain. ECB figures published on Monday showed the bank bought 4.49 billion euros worth of bonds from Oct. 13-19, up from 2.243 billion the previous week and taking the program's overall total to 169.5 billion euros.
"Markets are cautiously optimistic that there will be a viable agreement, but I still think there is a risk of disappointment," said Mark McCormick, currency strategist at Brown Brothers Harriman in New York.
"But the euro is unlikely to get much more momentum from the summit, and this has to do with the fact that the summit is not going to address any of the growth issues. It is possible that the euro zone is still hovering above recession, and growth is noticeably slowing down."
Traders cited offers in the euro around $1.3980-90, close to resistance at $1.3988, the 200-week moving average. Further resistance was seen around $1.4040, a 50 percent retracement of the euro's May to October decline, and traders also cited talk of an options barrier at $1.40 being defended.
The euro has rallied steadily since European leaders neared a deal over the weekend on bank recapitalisation. Euro zone officials also said divisions have narrowed between France and Germany on how to leverage the euro zone's rescue fund.
Investors may need to see a positive outcome from the region's second summit, however, for the euro to break above $1.40, while its current strength left it vulnerable to a sell-off.
With Wednesday's European Union leaders' summit still scheduled to take place, expectations of a broad agreement were tempered by fears any accord could lack details and disappoint markets.
The single euro zone currency earlier fell to New York session lows after a report said the meeting of EU finance ministers was canceled as details of issues to be discussed at the gathering have not been finalized. That was enough to send markets into a tailspin: U.S. stocks and the euro fell, while U.S. Treasuries drew a safe-haven bid.
"We are inclined to believe that the cancellation of the EU Finance Ministers meeting means more delays than progress on euro area talks," said Kathy Lien, director of research at GFT in Jersey City, New Jersey.
"With that in mind, however, there have also been reports that a deal on bank recapitalization and leveraging of the (euro zone rescue fund) is close. We won't know for sure until Wednesday when the EU Summit ends and the press conference is delivered but today's announcement certainly adds a degree of uncertainty in the markets."
In late morning trading, the euro EUR=EBS was last at $1.39022, down 0.2 percent on the day, after earlier falling to $1.38491 on news of the cancellation. The euro also hit $1.39605 earlier in the global session, its highest level since Sept. 8 on trading platform EBS.
The euro also weakened after German Chancellor Angela Merkel said Germany is opposed to a phrase in the European Union summit draft that calls for support of continued European Central Bank non-standard measures, or the bank's purchases of bonds in the secondary market.
The ECB has been buying government debt to check rising borrowing costs for some countries on the periphery of the euro zone, notably Italy and Spain. ECB figures published on Monday showed the bank bought 4.49 billion euros worth of bonds from Oct. 13-19, up from 2.243 billion the previous week and taking the program's overall total to 169.5 billion euros.
"Markets are cautiously optimistic that there will be a viable agreement, but I still think there is a risk of disappointment," said Mark McCormick, currency strategist at Brown Brothers Harriman in New York.
"But the euro is unlikely to get much more momentum from the summit, and this has to do with the fact that the summit is not going to address any of the growth issues. It is possible that the euro zone is still hovering above recession, and growth is noticeably slowing down."
Traders cited offers in the euro around $1.3980-90, close to resistance at $1.3988, the 200-week moving average. Further resistance was seen around $1.4040, a 50 percent retracement of the euro's May to October decline, and traders also cited talk of an options barrier at $1.40 being defended.
The euro has rallied steadily since European leaders neared a deal over the weekend on bank recapitalisation. Euro zone officials also said divisions have narrowed between France and Germany on how to leverage the euro zone's rescue fund.
Investors may need to see a positive outcome from the region's second summit, however, for the euro to break above $1.40, while its current strength left it vulnerable to a sell-off.
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