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The euro limps as recession worried continue in the Euro zone though peace returns to Italy

Monday, 14 November 2011
The euro failed at the start of the week to build on Friday's strong gains, after a well-received Italian bond auction and a calmer political situation in Italy and Greece, and slipped against the dollar in European trading in line with equities, dragging emerging European currencies lower as well.

The euro failed at the start of the week to build on Friday's strong gains, after a well-received Italian bond auction and a calmer political situation in Italy and Greece, and slipped against the dollar in European trading in line with equities, dragging emerging European currencies lower as well.
Markets responded initially with optimism to Italian Prime Minister Silvio Berlusconi's weekend resignation and cheered the instalment of a technocrat government led by respected economist Mario Monti, but economic and bank-funding concerns returned Monday as data showed the euro-zone region veering toward a recession.
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The euro traded as high as $1.3815 against the dollar at the start of Asian trading, only to be whacked lower by traders in Europe to the day's low of $1.3650. Analysts said the euro's outlook remains negative because of the region's deeply embedded fiscal problems and would remain vulnerable to periodical waves of selling.

"While we cannot rule out a brief foray to $1.40, we firmly believe that the euro requires a much larger risk premium and that rallies [will] be sold into," said Tom Levinson, a currency strategist at ING in London.
This downbeat tone Monday contrasts with the boost in sentiment that followed Italy's successful auction of EUR3 billion in five-year bonds Monday, which analysts described as decent even though the country paid a euro-era high 6.29% for the privilege, compared with 5.32% paid in October. That auction also came in the wake of last week's Italian bond carnage when yields burst beyond 7%, but worries that the euro zone is slowing fast and that the bloc's monetary policy would have to be loosened further curbed investor enthusiasm for the single currency.

Data showed euro-zone industrial output fell 2% in September from August--its fastest decline in two and a half years.
"These data appear to support our view that the euro zone will soon fall back into another fairly deep recession," said Capital Economics in a note to clients.

Emerging European currencies also came under pressure, with the forint declining sharply after Standard & Poor's Corp. placed the country on watch for a possible ratings downgrade Saturday and Fitch Ratings lowered its outlook on Hungary to negative from stable.
The euro traded at its highest level against the forint since March 2009, at HUF315.29 and came dangerously close to an all-time high that the cross would hit at HUF317.13.

At 1221 GMT the euro was trading at $1.3657 compared with $1.3755 late Friday in New York, according to EBS via CQG. The dollar was trading at Y76.99 compared with Y77.14, while sterling was trading at $1.5934 compared with $1.6077.
Source: Dow Jones News




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