Euro Advances From Almost 3-Week Low Before ECB Meets; Yen Gains

The euro rose for a second day against the dollar, reversing earlier losses, after failing to drop below its 50-day moving average.

The 17-nation currency advanced from almost a three-week low after avoiding the $1.2993 level. The euro fell earlier before the European Central Bank meets this week amid concern the region’s economy is faltering. The yen gained from almost the weakest in 29 months versus the dollar even amid bets Japan’s government will announce further stimulus.

“The euro simply didn’t break much lower and stayed quite nicely around the $1.30 level,” Sebastien Galy, a senior foreign-exchange strategist at Societe Generale SA in New York, said in a radio interview on “Bloomberg on the Economy” with Sara Eisen and Scarlet Fu. “The temptation therefore is to try to push it a little bit higher.”

The euro appreciated 0.4 percent to $1.3117 at 5 p.m. New York time after falling earlier to $1.3017. It touched $1.2998 on Jan. 4, the lowest level since Dec. 12. The yen gained 0.4 percent to 87.79 per dollar, rising against most major peers, after declining to 88.41 on Jan. 4, the weakest level since July 15, 2010. The Japanese currency traded little changed at 115.15 to the euro.

It was the second straight day Europe’s shared currency failed to breach its 50-day moving average versus the dollar. The calculations, which indicate momentum, are seen by some traders as potential turning points in the direction of a currency’s price.

Technical Level

The euro also remained above $1.2985, the 50 percent retracement of its advance from $1.2662 on Nov. 13 to $1.3308 on Dec. 19, strategists at Credit Suisse Group AG wrote in a client note, citing Fibonacci analysis. That leaves the euro poised to rally to $1.3309, the highest since April, they wrote. Fibonacci analysis is based on the theory that prices rise or fall by certain percentages after reaching a high or low.

“The focus is shifting higher once more, and we envisage a recovery,” the analysts including Cilline Bain in London wrote.

The euro strengthened 1 percent over the past month, according to Bloomberg Correlation-Weighted Indexes, which track 10 developed-nation currencies. The U.S. dollar dropped 0.6 percent and the yen tumbled 7.3 percent.

The Dollar Index, which Intercontinental Exchange Inc. uses to track the U.S. currency, fell for the first time in four days. It lost 0.4 percent to 80.203 in its biggest drop on a closing basis since Dec. 14.

Kiwi Climbs

New Zealand’s dollar gained versus all of its 16 most-traded counterparts amid speculation Japan will boost spending to bolster its economy. The currency, nicknamed the kiwi, rallied 0.7 percent to 83.71 U.S. cents.

A gauge of price swings remained below average. JPMorgan Chase & Co.’s G7 Volatility Index, based on three-month options for Group of Seven currencies, was at 7.77 percent after touching 7.54 percent on Jan. 3, the lowest level since Dec. 21. The average in 2012 was 9.23 percent.

Lower volatility makes investments in currencies with higher benchmark interest rates more attractive as the risk in such trades is that market moves will erase profits.

The euro region’s economy is forecast to shrink 0.1 percent this year after a 0.4 percent drop in 2012, its first contraction since 2009, according to the median estimate of economists surveyed by Bloomberg. The U.S. may grow 2 percent, compared with 2.2 percent in 2012.

More ‘Discerning’

“The risk-on, risk-off dynamic has morphed into a little bit more of a discerning currency-by-currency analysis,” Thomas Molloy, chief dealer at FX Solutions LLC, an online currency-trading company in Saddle River, New Jersey, said in a telephone interview. “There’s a little bit of an expectation that this year, 2013, will be the year that currencies that have good news will have strong currencies, currencies with bad news will have weaker currencies -- rather than the close-your-eyes and risk-on, risk-off trade that we had in 2012.”

The ECB meets Jan. 10 and will keep its main refinancing rate at a record low of 0.75 percent, according to the median estimate of 55 economists in a Bloomberg News survey.

The Bank of England also is to meet on Jan. 10, and another survey projected it will keep its key rate at 0.5 percent.

“We may just be in a bit of consolidation ahead of these central-bank meetings,” Eric Viloria, senior currency strategist at Gain Capital Group LLC, said in a phone interview.

The yen rallied after falling against the dollar for eight consecutive weeks amid speculation Japan’s newly elected prime minister, Shinzo Abe, will boost efforts to spur growth.

The government will announce 12 trillion yen ($137 billion) of fiscal stimulus this month to boost the nation’s shrinking economy, the Yomiuri newspaper said today.

The yen’s 14-day relative strength index versus the dollar dropped to 15.5 on Jan. 4, below the level of 30 that some traders view as a signal an asset has fallen too fast. The index was 20.9 today.

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