Euro/dollar slide may entice corporate buyers

Neal Kimberley

Published — Saturday 8 December 2012

Last update 7 December 2012 11:11 pm

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LONDON: Euro zone exporters might be tempted to buy some euros against the dollar in the low $ 1.29s, given the slide in the pair since topping $ 1.3100 on Wednesday.
Yesterday’s cut in the Bundesbank’s growth outlook for Germany has compounded the effect of Thursday’s European Central Bank forecast, that the euro zone economy is likely to shrink again in 2013, to weigh on the euro.
The swiftness of the euro’s move lower against the greenback in the last 48 hours — from $ 1.3066 at Wednesday’s close to below $ 1.2950 yesterday — might entice some bargain-hunting euro zone exporters.
Such exporters, almost always natural buyers of euros to cover the expected receipts from non-euro denominated sales to countries outside the euro zone, look to acquire those euros as cheaply as possible.
And, despite the gloomy ECB and Bundesbank forecasts, German industrial orders rose far more than expected in October due to strong demand from abroad, especially from outside the euro zone.
The seasonally and price-adjusted order intake rose 3.9 percent in October, its steepest increase since January 2011, and far above the mid-range minus 0.9 percent contraction forecast in a Reuters poll of economists.
That may engender some confidence among German exporters and increase their appetite to add some euro hedges on dips in the value of the currency.
Daimler said it expects its truck division to sell more than 6,000 vehicles, a record, to China this year.
More broadly, the euro zone’s economic slump was a little less severe in November than previously thought, business surveys showed on Wednesday.
Markit’s Eurozone Composite PMI, which gauges business activity across thousands of companies, rose in November to 46.5 from 45.7 in October — a distinct improvement on the preliminary reading of 45.8 reported last month.
Admittedly, France, Spain and Italy were the main drags in the euro zone economy through November, but Germany, the export powerhouse of the currency bloc, fared better.
Markit’s final composite PMI for Germany, tracking activity in both manufacturing and services, rose to 49.2 in November from 47.7 the previous month, a survey showed on Wednesday.
While that was just below the 50 mark separating growth from contraction, it was well above the previous flash estimate of 47.9.
With these scattered but positive signs for euro zone, and specifically German, exporters, a slide in the euro that is more linked to the outlook for the euro zone economy as a whole could spell opportunity for natural buyers of the single currency.
Perhaps that explains talk on Friday of natural demand for euros in the $ 1.2900-1.2920 area despite the 1330 GMT release of keynote US employment data.
— Neal Kimberley is an FX market analyst for Reuters. The opinions expressed are his own.

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