forex trading outlook today - euro rose, Debt crisis still points to weaker single currency : The euro rose against the dollar on Friday on the possibility the European Central Bank will lend to the International Monetary Fund to bail out bigger euro zone economies and as borrowing costs for Italy and Spain eased.
Sentiment toward the euro remained bearish, however, and the common currency was headed for a third straight week of losses as fears persisted that the debt crisis could engulf major euro zone states such as France and trigger a break-up of the 17-nation bloc.
Pressure has grown on the ECB to take a more forceful role in tackling the debt crisis. Euro zone officials said there have been discussions that the ECB could lend to the IMF to provide the fund with enough money to bail out even the biggest euro zone countries.There are also calls for the ECB to step up its bond purchases.
Either approach would be satisfactory, said Andrew Busch, senior currency strategist at BMO Capital Markets in Chicago, "The broader point is that the ECB is finding a way to stabilize the European debt crisis," he said.
"This third-party lending arrangement not only works around ECB laws, but also provides an avenue for the ECB to create enough funding to stabilize the crisis while maintaining its appearance of independence," he added.
The euro rose more than 1 percent to a session peak of $1.3614 on Reuters data, pulling away from a five-week low of $1.3420 struck on Thursday. It last traded at $1.3506, up 0.4 percent on the day.
On the week, the euro was down 2 percent versus the dollar. Italian 10-year government bond yields fell to 6.7 percent after earlier rising as high as 6.98 percent after the ECB again bought bonds in the secondary market.
Spanish 10-year yields retreated to around 6.4 percent. Bond market participants polled by Reuters saw a 50/50 chance that the ECB will expand bond purchases to engage in outright quantitative easing.
Some investors closed their bets against the euro ahead of the weekend, which also boosted the euro, and gains accelerated after automatic buy orders were triggered around $1.3550.
Support lies near $1.3405, the 76.4 percent retracement of last month's rally from around $1.3144 on Oct. 4 to a high of $1.4247 on Oct. 27.
FUNDING STRAINS
Technical signs on the euro remained bearish, said Camilla Sutton, chief currency strategist at Scotia Capital in Toronto. "We see today's rally as temporary and continue to prefer to play the euro from the short side," she said.
There are signs that investors have stopped shifting money into the relatively safer German bunds and are abandoning the euro zone altogether, with German bond yields no longer falling as peripheral yields rise.
With investors shunning euro zone assets, funding strains were increasing for euro zone financial institutions. The premium for swapping euros into dollars rose, with the three-month cross-currency basis swap hitting its highest level since the 2008 financial crisis.
"So far this has not had a dramatic effect on the euro, but it is likely to be behind some of the recent weakening," said FxPro chief economist Simon Smith.
Analysts said high funding costs were pushing banks into shorter duration funding and could spread into spot currency markets, weighing on the euro.
The safe-haven Japanese yen and Swiss franc gained. Againstthe yen, the dollar slid as low as 76.575 on trading platform EBS , the weakest level since Japan's massive intervention on Oct. 31. It was last down 0.1 percent at 76.93.
The dollar also lost 0.5 percent to 0.9163 Swiss franc
Sentiment toward the euro remained bearish, however, and the common currency was headed for a third straight week of losses as fears persisted that the debt crisis could engulf major euro zone states such as France and trigger a break-up of the 17-nation bloc.
Pressure has grown on the ECB to take a more forceful role in tackling the debt crisis. Euro zone officials said there have been discussions that the ECB could lend to the IMF to provide the fund with enough money to bail out even the biggest euro zone countries.There are also calls for the ECB to step up its bond purchases.
Either approach would be satisfactory, said Andrew Busch, senior currency strategist at BMO Capital Markets in Chicago, "The broader point is that the ECB is finding a way to stabilize the European debt crisis," he said.
"This third-party lending arrangement not only works around ECB laws, but also provides an avenue for the ECB to create enough funding to stabilize the crisis while maintaining its appearance of independence," he added.
The euro rose more than 1 percent to a session peak of $1.3614 on Reuters data, pulling away from a five-week low of $1.3420 struck on Thursday. It last traded at $1.3506, up 0.4 percent on the day.
On the week, the euro was down 2 percent versus the dollar. Italian 10-year government bond yields fell to 6.7 percent after earlier rising as high as 6.98 percent after the ECB again bought bonds in the secondary market.
Spanish 10-year yields retreated to around 6.4 percent. Bond market participants polled by Reuters saw a 50/50 chance that the ECB will expand bond purchases to engage in outright quantitative easing.
Some investors closed their bets against the euro ahead of the weekend, which also boosted the euro, and gains accelerated after automatic buy orders were triggered around $1.3550.
Support lies near $1.3405, the 76.4 percent retracement of last month's rally from around $1.3144 on Oct. 4 to a high of $1.4247 on Oct. 27.
FUNDING STRAINS
Technical signs on the euro remained bearish, said Camilla Sutton, chief currency strategist at Scotia Capital in Toronto. "We see today's rally as temporary and continue to prefer to play the euro from the short side," she said.
There are signs that investors have stopped shifting money into the relatively safer German bunds and are abandoning the euro zone altogether, with German bond yields no longer falling as peripheral yields rise.
With investors shunning euro zone assets, funding strains were increasing for euro zone financial institutions. The premium for swapping euros into dollars rose, with the three-month cross-currency basis swap hitting its highest level since the 2008 financial crisis.
"So far this has not had a dramatic effect on the euro, but it is likely to be behind some of the recent weakening," said FxPro chief economist Simon Smith.
Analysts said high funding costs were pushing banks into shorter duration funding and could spread into spot currency markets, weighing on the euro.
The safe-haven Japanese yen and Swiss franc gained. Againstthe yen, the dollar slid as low as 76.575 on trading platform EBS , the weakest level since Japan's massive intervention on Oct. 31. It was last down 0.1 percent at 76.93.
The dollar also lost 0.5 percent to 0.9163 Swiss franc
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