Reuters: US Dollar Report: FOREX-Euro slips but possible short covering may lend support

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FOREX-Euro slips but possible short covering may lend support May 8th 2012, 04:44 Tue May 8, 2012 12:44am EDT * Euro eases, but up from previous day's 3-month low * Political uncertainty in Greece seen as euro negative * Market positioning may support euro -analyst * Dlr/yen bids may emerge around Y79.50 and below -trader By Masayuki Kitano SINGAPORE, May 8 (Reuters) - The euro eased on Tuesday but stayed above the previous day's three-month low, with the potential for short covering seen offering the currency some support even as worries over political uncertainty in Greece clouded its outlook. The single currency dipped 0.2 percent from late U.S. trade on Monday to $1.3031, but stayed well above Monday's trough near $1.2955, its lowest level since late January. The euro came under pressure on Monday after elections in Greece and France cast doubt on the ability to push through austerity plans regarded as key to tackling the euro zone debt crisis. "This seems to me like a pretty serious situation," said Satoshi Okagawa, senior global markets analyst at Sumitomo Mitsui Banking Corp. in Singapore, referring to the election results and political uncertainty in Greece. However, the single currency's downside may be limited as many market players have already taken bearish bets on it, Okagawa said, adding that other analysts held a similar view. "Everyone says the euro has nowhere to go but down based on economic fundamentals but they also say that market players are already betting in that direction," he said. The existence of such bearish bets on the euro suggests that the single currency could get a lift if short-covering kicks in. Data from the U.S. Commodity Futures Trading Commission shows that currency speculators still held a relatively large net short position in the euro in the week ended May 1. CLOUDS HANGING OVER EUROPE One cloud that hangs over the euro is political uncertainty in Greece. A first attempt to form a new Greek government collapsed in less than a day on Monday, following an election that left gaping questions over the country's ability to avert bankruptcy and stay in the euro. Three Greek finance ministry officials told Reuters the country might run out of cash by the end of June if it does not have a government in place to negotiate the next installment of EU/IMF aid and state revenue falls short of projections. Another source of uncertainty comes from France, where Socialist Francois Hollande swept to victory in a presidential election on Sunday, ousting centre-right incumbent Nicolas Sarkozy. Market players worry that Hollande's focus on growth measures could create tensions with Germany's insistence on fiscal austerity. On top of votes in France and Greece, results of local elections in Italy on Monday also showed a public backlash against austerity measures, said Simon Grose-Hodge, head of investment advisory for South Asia at LGT Bank in Singapore, adding that the European election results were negative for the euro. "This suggests a lot of delays, at a minimum, in the policies that are in place to reduce the deficits. As far as markets are concerned, we've seen repeatedly that fiscal irresponsibility gets punished more than a lack of growth," Grose-Hodge said. "So any backsliding in terms of debt reduction in Europe will be punished by the markets," he said. Over the next month, any short-covering rally in the euro could be limited to around $1.32, Grose-Hodge said, adding that the euro could fall to around $1.28-$1.29 in that time frame. Against the yen, the euro dipped 0.1 percent to 104.24 yen but remained above a three-month low near 103.24 yen hit on Monday on trading platform EBS. The dollar rose 0.1 percent against the yen to 79.99 yen . Link this Share this Digg this Email Reprints

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