Goodluck...article re the USD/Euro trade...
LONDON -- The euro reached its highest level ever Friday as traders took the opportunity to push the currency towards large options positions in thin trading.
The gains in the euro -- which hit $1.2015 -- also boosted euro government bond prices because a stronger currency reduces inflationary pressures in the region and should hit exports. The 10-year German bund future was trading at 112.14, up 0.31, at 1405 GMT.
At the same time, the implications of the strong euro on the competitiveness of European companies also weighed down stocks. The Dow Jones Stoxx 50 index was trading more than 14 points lower at 2621.24.
The euro is now expected to remain around the $1.20 level for the remainder of this session, with many U.S. dealers still away from their desks after the Thanksgiving holiday Thursday.
The thin trading conditions resulting from the holiday encouraged market participants to push the currency up towards the key psychological $1.20 level, despite euro selling by market players defending options positions. Reduced liquidity usually brings exaggerated price moves.
"I think it was the thin market conditions and there were some barriers (options) at $1.20 to take out," said Deutsche Bank's London head of foreign exchange trading, Gordon Wallace.
Dealers explained that these barrier options, which are expiring this session, would pay out if the euro hit $1.20. The sellers of these options, who have been trying to avoid paying out on them, have been selling euros against dollars below $1.20 recently. But the market saw its opportunity, amid the illiquid trading conditions, to break that defensive activity.
But this wasn't the only factor helping the euro higher Friday. A question posed during a regular German government press conference in Berlin had elicited an interesting response on the euro's recent gains.
No Official Concern
"We naturally have to see that how the euro develops is an important issue for exports but at the moment we see no grounds for concern," a government spokesman was quoted as saying.
The message the foreign exchange markets took from this was clear: carry on buying the euro.
As UBS currency analyst Mansoor Mohi-Uddin said: "The market has always been concerned about the euro intervention risks."
But lying behind all of this is the recent dollar downtrend, reinforced recently by the fact that the U.S. currency has been unable to capitalize on strong domestic economic data.
This week, the market has digested an upward revision to third-quarter gross domestic product figures as well as strong readings on the U.S. manufacturing sector, goods orders and the labor market.
Yet the dollar has weakened this week, with the euro pushing up from around $1.1760 at the start of the week. The excuse, say analysts, is that, in the short term, U.S. growth without a pickup in the rest of the world will just exacerbate the current account deficit.
For many dealers, another argument for selling the dollar was the fact that the currency dropped below a key technical level against the Swiss franc, falling under CHF1.29 for the first time since May.
"This made people more willing to sell the dollar against the euro as well," said Mohi-Uddin. "And the dollar's also at a 10-year low against the Canadian dollar."
The U.S. dollar was trading at C$1.2988 at 1400 GMT.
Most dealers and analysts don't believe the euro will make much further headway Friday, although further gains are on the cards in December.
"I think that we'll continue to trade around here today but I think we'll be significantly higher than $1.20 during the last month of the year," said Wallace.
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