"Euro can and will go much lower..."
Economy & Business: Asia
Euro hell bent on new low in Tokyo
..........TOKYO (October 27) : The euro's headlong flight showed little sign of abating on Thursday, as markets questioned the commitment of central banks to defend it.
..........The single currency crashed to a lifetime low $0.8246 in New York on Wednesday after the Group of 20 nations wound up their two-day Montreal meeting with a statement which did not mention either the euro or intervention.
..........That left the onus very much on European Central Bank (ECB) President Wim Duisenberg to reassure investors when he gives a speech on monetary and economic union later on Thursday.
..........But dealers and analysts found it hard to imagine what he could say that would rescue the situation, saying things were too grave from him to merely dodge the issue as he did so assiduously at the G20.
.........."The euro can and will go much lower," was the emphatic conclusion of Ken Landon, senior currency strategist at Deutsche Bank in Tokyo.
.........."The only thing propping it up is the threat of intervention and even that's not very credible anymore," he said, noting the euro was trading almost five cents below the level at which the Group of Seven rich nations first acted on September 22.
..........In late afternoon trade, the euro was wallowing at $0.8275/80 compared with around $0.8720 when the G7 intervened. It was also at 89.52/60 yen, having plunged past its previous lifetime low of 89.50 to 88.98 in New York.
..........And as investors fled all things European, it was the dollar that benefited most. It jumped more than two centimes on the Swiss franc to a 14-year peak at 1.8220 francs, while climbing to a five-week high on the pound around $1.4310.
..........It even picked up against the yen, the only major currency that has withstood the dollar's advances this year, to reach 108.30 yen from a 107.75 low on Wednesday.
..........All of which saw it rise one percent to decade highs on the FINEX trade weighted index, which measures the dollar against a basket of major currencies.
..........A sceptical market had never expected much from a church as broad as the G20, but it still came as a surprise when the final communique did not mention the euro, even in passing.
..........Instead, US Treasury Secretary Lawrence Summers said the subject had cropped up in the corridors of the meeting, but there was no focused discussion on how to support the euro.
..........Some traders were wary the G7 might be setting a bear trap: letting, indeed even encouraging, the market to sell the euro short before stepping in with intervention to inflict as much pain as possible on speculators.
..........If so, then the market was wise to the danger as -- for the last week or more -- investors have been buying euro calls at much higher strike levels to hedge against just such a risk.
..........Furthermore, much of the selling has not been speculative but rather related to mergers and acquisitions or to long term money managers cutting back on long-held euro positions.
..........The euro's initial dive through $0.8324 support on Wednesday, for instance, owed much to a huge sell order from a Dutch bank thought to be buying dollars to settle a US acquisition.
..........Dealers also saw grim omens in the fact the euro's demise came despite a steep 5.6 percent slide in the Nasdaq stock index.
.........."That's not the way it was supposed to happen," said a US bank dealer. Conventional wisdom has always been that the United States, with its high equity valuations and reliance on foreign funds, has the most to lose from share market weakness.
.........."The idea was that foreign investors would flee the States first. Well, they're fleeing all right, but from the euro, the Swiss franc and all the secondary currencies.
.........."The States is the source of everyone's fears and the trustee of everyone's hopes at one and the same time."-Reuters
..........Copyright 2000 Reuters (Published under arrangements with Reuters)
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