Euro Declines Before Spanish Debt Sale, German Sentiment

The shared currency slid 0.1 percent to 105.59 yen after dropping 0.2 percent to 105.67 yesterday.

The euro weakened against the dollar and yen as Spain prepares to sell debt in a market where concern the region’s fiscal crisis is spreading drove the nation’s borrowing costs to the highest this year.
The 17-nation currency also fell before data that may show confidence among investors in Germany, Europe’s biggest economy, declined from a 21-month high. Australia’s dollar slid for a third day versus its U.S. counterpart after the South Pacific nation’s Reserve Bank said slower inflation would increase the prospects of an interest-rate cut. China’s yuan rose as improving U.S. economic data boosted the nation’s export outlook.

“My feeling is that it’s still overall a bearish mood with regard to the euro,” said Kara Ordway, a currency strategist at City Index Group Ltd. in Sydney. The debt sale “will give us a first indication as to how currently people view Spain.”
The euro lost 0.3 percent to $1.3108 at 7:05 a.m. in London after reaching $1.2995 yesterday, the lowest level since Feb. 16. The shared currency fell 0.3 percent to 105.37 yen. The U.S. dollar was at 80.39 yen after declining yesterday to 80.30, the weakest since Feb. 29.
Spain will sell 12-month and 18-month bills today, followed by auctions of debt due in 2014 and 2022 on April 19.

Spanish Yields
Yields on the nation’s 10-year notes touched 6.16 percent yesterday, the highest since Dec. 1 and edging toward the 7 percent level that pushed Greece, Ireland and Portugal into international rescues. The cost of insuring against a Spanish default rose to the highest on record, according to CMA.
Spanish Prime Minister Mariano Rajoy said his nation must slash its budget deficit in order to maintain access to financing. Failing to reduce the deficit will mean “we won’t be able to fund our debt, we won’t be able to meet our commitments,” he told a conference in Madrid yesterday.
Spain has the euro area’s fourth-biggest economy and the government forecasts it’ll contract 1.7 percent this year as the deepest budget cuts in more than 30 years are implemented. The plan seeks to shrink the deficit to 5.3 percent of gross domestic product this year from 8.5 percent last year.
The implied volatility of three-month options for Group of Seven currencies rose to as high as 10 percent yesterday, according to the JPMorgan G7 Volatility Index. An increase makes investments in currencies with higher benchmark rates less attractive because it shows the risk is greater that market moves will erase profits on such trades.
Currency Volatility
The euro is approaching its support zone of between 104.25 yen and 104 yen, according to Niall O’Connor, a technical analyst in New York at JPMorgan Chase & Co.
“We are wary of a bounce” from those levels, he wrote in a research note yesterday. Support refers to a level where buy orders may be clustered. The 50 percent retracement on the euro’s Fibonacci chart between a January low and a March high was at 104.24 yen, data compiled by Bloomberg show. The euro slid to 104.63 yen yesterday.
The ZEW Center for European Economic Research in Mannheim will probably report today its index of German investor and analyst expectations, which aims to predict economic developments six months in advance, fell to 19 in April from 22.3 in March, according to the median estimate in a Bloomberg News survey. Last month’s figure was the highest reading since June 2010.
“The euro should continue to be constrained by the prospect of soft ZEW survey results today amid already nervous conditions in peripheral bond markets,” Cameron Umetsu, a currency strategist at UBS AG, wrote in a report.
RBA Minutes
The euro has lost 0.1 percent in the past month, according to Bloomberg Correlation Weighted Indexes. The Australian dollar dropped 2.4 percent in the same period, the worst performance among the 10 developed-nation currencies tracked by the gauge.
Minutes released today of the Reserve Bank of Australia’s April 3 meeting, when officials held the benchmark interest rate unchanged at 4.25 percent, reaffirmed that the next rate reduction hinges on an April 24 report on first-quarter inflation. Governor Glenn Stevens said in a statement after this month’s gathering that the board “judged the pace of output growth to be somewhat lower than earlier estimated.”
The so-called Aussie lost 0.3 percent to $1.0322.
China’s yuan advanced after a report yesterday showed U.S. retail sales gained 0.8 percent in March, beating economist forecasts.
Home starts probably increased to a 705,000 annual rate in March following a 698,000 pace the prior month, while industrial production gained 0.3 percent after being little changed in February, according to estimates in separate Bloomberg polls before the figures are released today.
The yuan gained 0.2 percent to 6.3031 per dollar, according to the China Foreign Exchange Trade System.
To contact the reporters on this story: Kristine Aquino in Singapore at kaquino1@bloomberg.net; Masaki Kondo in Singapore at mkondo3@bloomberg.net