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FOREX-Euro hits 2-mth high on Greek deal expectations

08/02/2012 at 10:24

Updates prices, adds comment, changes dateline previous SINGAPORE

* Euro supported by Greek deal hopes, short-covering

* Resistance seen near 100-day moving average around $1.3333

* Healthy demand expected at German Bund auction

By Nia Williams

LONDON, Feb 8 Reuters - The euro rose to a two-month high against the dollar on Wednesday, supported by optimism Greek leaders are close to agreeing on reforms needed to secure a second bailout and avoid a messy default despite slow progress in talks.

Greek leaders will meet again on Wednesday in a bid to strike a deal on painful austerity steps in return for another international rescue package, following a string of delays in negotiations.

Analysts said the euro could test $1.33 and push as high as $1.35 if a deal is finalised. But it was seen as unlikely to sell off sharply even if talks drag on for another day, given sizeable euro short positions that investors are reluctant to add to before knowing the outcome of negotiations.

The single currencyEUR= was last up 0.1 percent at $1.3275, having hit a peak of $1.3289, its highest level since Dec. 12. Asian investors were cited as buyers below $1.3260 while topside resistance came in at the 100-day moving average around $1.3333.

"There has been a propensity by the market in general to look at the Greek scenario with a glass half-full approach, irrespective of the deadlines Greece has missed," said Jane Foley, senior currency analyst at Rabobank.

"I think positioning has a significant part to play. Although shorts are off their record levels, they are still really extreme and people do not want to get caught in a rally."

The latest positioning data showed currency speculators trimmed euro short positions to 157,546 contracts, down from a record 171,347 contracts the previous week.

Euro resilience was also down to the European Central Bank's provision of low-rate long-term funds to banks that ensured ample liquidity in the banking system and was helping to prop up risk appetite, Foley said.

But some strategists said euro upside was limited as many short positions had already been covered on Tuesday when the euro posted its strongest daily gain since November. It climbed from below $1.30 to a high of $1.3270 on talk a Greek deal was imminent.

"Potentially we may even have a buy-on-rumour, sell-on-fact type of outcome," said Mitul Kotecha, head of global foreign exchange strategy for Credit Agricole in Hong Kong.

"The euro has already strengthened fairly sharply on expectations of some sort of a deal and I think once it does happen we may see a little bit more upside at most."

Market players will also focus on a German Bund auction later in the session. Berlin will sell 4 billion euros of 5-year bonds and is expected to see healthy demand.

There was little reaction in the euro to data showing German exports fell at their fastest rate in nearly three years in December and imports also unexpectedly dropped, suggesting Europe's bulwark economy could have contracted more than forecast in the fourth quarter of 2011.

YEN RETREATS

The euroEURJPY= also hit a seven-week peak against the yen, gaining strength on reported stop-loss buying. The Japanese currency retreated broadly on the crosses, with traders saying the technical outlook for cross/yen pairs had improved after their recent breach of some technical resistance levels.

The single currencyEURJPY= rose as high as 102.449 yen on trading platform EBS and was last up 0.5 percent at 102.33 yen.

Stop-loss dollar buying, coupled with dollar buying by Japanese importers and offshore players, also helped to lift the greenback against the yen, traders said. It rose 0.4 percent to 77.08 yenJPY= , pulling away from a three-month low of 76.027 yen hit last week.

Earlier on Wednesday, the yen showed little reaction to data showing that Japan's current account surplus shrank sharply to a 15-year low in 2011.

Better risk appetite and hopes Greece is close to agreeing austerity measures also helped to boost commodity currencies. The Australian dollarAUD=D4 rose to a six-month high of US1.0844.

Additional reporting by Masayuki Kitano; editing by Stephen Nisbet

nia.williams@thomsonreuters.com+44 207 542 1356nia.williams.thomsonreuters.com@reuters.net

 
Currency bid prices at 0908 GMT

All data taken from Reuters 
with percent change calculated from the daily U.S. 
close at 2130 GMT. 
                       Last     US Close  % Chg   YTD %   2011 
                                07 Feb

Close 
                       ----------------------------------------- 
 Euro/dlrEUR=      1.3280   1.3264   +0.12    +2.72   1.2928 
 Dlr/yenJPY=       77.06    76.78   +0.36    +0.26    76.86 
 Euro/yenEURJPY=   102.31   101.85   +0.45    +2.94    99.39 
 Dlr/swissCHF=      0.9112   0.9114   -0.02    -3.05   0.9399 
 Stg/dlrGBP=      1.5919   1.5903   +0.10    +2.69   1.5502 
 Dlr/cadCAD=      0.9938   0.9944   -0.06    -2.52   1.0195 
 Aus/dlrAUD=      1.0840   1.0804   +0.33    +6.04   1.0223 
 NZD/DlrNZD=      0.8387   0.8355   +0.38    +7.79   0.7781 
 Euro/swissEURCHF=   1.2103   1.2088   +0.12    -0.42   1.2154 
 Euro/stgEURGBP=   0.8340   0.8340   +0.00    +0.05   0.8336 
 Euro/sekEURSEK=   8.8494   8.8281   +0.24    -0.84   8.9246 
 Dlr/NokNOK=      5.7594   5.7628   -0.06    -3.75   5.9837

Keywords: MARKETS FOREX


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