Euro and Oil Resume Fall

Posted by Joseph R. Fonseca January 3, 2015

The euro fell on Friday, continuing the slide that saw the currency finish out 2014 at a 29-month low against the U.S. dollar, on expectations that the European Central Bank will soon embark on outright money-printing.

Crude prices fell in a volatile session, while equities as measured by a global index lost ground.

Wall Street's equity benchmark ended a choppy day barely changed, with gains in energy and high-dividend stocks offsetting declines in consumer-centered shares.

The S&P 500 on Wednesday closed out trading for 2014 with a third consecutive year of double-digit percentage gains, though it ended about 1 percent below its all-time closing high.

The euro threatened to dip below $1.20 for the first time since June 2010 on Friday, hitting a low of $1.2002.

The divergence between European and U.S. monetary policy dominated currency markets' thinking last year. Remarks by ECB President Mario Draghi on Friday, in an interview with German financial daily Handelsblatt, that the central bank was less likely to preserve price stability than it was six months ago added to expectations that the ECB will step in soon.

"Markets and commentators have been talking about this for ages, but to hear it from the horse's mouth has had a clear effect on the euro," said David Rodriguez, a quantitative strategist at DailyFX.com, a unit of retail FX broker FXCM in New York.

The ECB, which targets inflation at just below 2 percent, is to hold its next policy meeting on Jan. 22.

The greenback's broad strengthening included a rise against the yen, to 120.74 yen. The dollar index hit 91.131, the highest level since March 2006.

Business surveys showed the global economy ended 2014 in a fragile state as factories struggled to maintain growth across Europe and Asia, adding to pressure on central banks to implement more stimulus. In the United States, the pace of manufacturing growth slowed more than expected in December.

The weak data weighed on equity indexes, including on Wall Street where the S&P 500 hit a two-week low before closing flat.

"We are left with enough reason to suspect we continue to be in a different place and have different experiences than our major trading partners, but it is certainly not likely to demonstrate we are accelerating off of what had been a strong third and fourth quarter," said Eric Wiegand, senior portfolio manager for private client reserve at U.S. Bank in New York.

The Dow Jones industrial average rose 9.92 points, or 0.06 percent, to 17,832.99, the S&P 500 lost 0.7 points, or 0.03 percent, to 2,058.2, and the Nasdaq Composite dropped 9.24 points, or 0.2 percent, to 4,726.81.

The pan-European FTSEurofirst 300 index closed down 0.4 percent. An MSCI gauge of major equity markets worldwide fell 0.3 percent.

Treasuries prices rose on the U.S. data, with benchmark 10-year notes last up 17/32 in price to yield 2.114 percent, near the lowest level in two weeks. Thirty-year bonds gained 1-7/32 in price to yield 2.691 percent.

Yields on government bonds issued by the euro zone's heavily indebted southern member states, which the ECB would likely buy in a quantitative easing program, fell on Friday after Draghi said the risk of the ECB falling short of its mandate on inflation targeting had risen compared with six months ago.

Oil prices remained under pressure after tumbling in the second half of 2014. U.S. crude futures fell 1.4 percent to $52.55 a barrel, while Brent was off 1.8 percent at $56.31 .

U.S. crude rose as much as 3.5 percent during the session and fell as much as 2.3 percent.

The combination of the supply glut and the strong dollar has been a "double whammy" for crude oil prices, said Walter Zimmerman, chief technical analyst at United-ICAP.

"This is a long-term cyclical downtrend," Zimmerman said. "It's going to take a while for prices to fall low enough to cut off that excess production."

Spot gold rose 0.5 percent to $1,187.46 an ounce, after touching its lowest level in a month.