Reuters: US Dollar Report: FOREX-Euro rises on short-covering as market awaits ECB

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FOREX-Euro rises on short-covering as market awaits ECB Jun 6th 2012, 08:23 Wed Jun 6, 2012 4:23am EDT * Short-covering rally boosts euro * But traders wary before ECB policy meeting * Aussie jumps as Q1 GDP well above forecasts By Jessica Mortimer LONDON, June 6 (Reuters) - The euro rose on Wednesday as investors cut hefty short positions, though concerns about Spain's troubled fiscal situation and the possibility of a rate cut by the European Central Bank could limit its rise. The euro recouped losses suffered on Tuesday after a Spanish minister warned the country was losing access to credit markets, helped in part as unexpectedly strong Australian growth data lifted the Australian dollar and other riskier assets. G7 finance ministers took no immediate steps to soothe fears over Europe's debt problems on Tuesday but did discuss policy responses, including "progress towards financial and fiscal union in Europe," the U.S. Treasury said. Analysts said any move towards closer financial integration would boost the euro, but progress is likely to be very slow, leaving many traders looking to sell the euro on rallies. However, the dollar also remained under pressure after weak U.S. jobs figures last week sparked talk that the Federal Reserve could resort to a fresh bout of quantitative easing. "Euro/dollar is likely to squeeze higher but people will come in and sell rallies ... A one cent rally on the day would be a good opportunity to fade it," said Paul Robson, currency strategist at RBS. Most in the market expect the ECB to keep interest rates at 1.0 percent, but there is a risk policymakers will opt to cut rates to boost the euro zone's fragile economy. A rate cut would probably weigh on the euro. The euro was up 0.6 percent against the dollar at $1.2527, pulling away from a two-year low of $1.2288 plumbed last Friday. But traders said any gains in the currency were likely to run into offers up to $1.2540. With recent data showing speculators holding record short euro and substantial long dollar positions, analysts saw room for the euro to gain as they trim their bearish euro trades. But the euro could stall ahead of chart resistance at $1.2545, the 76.4 percent Fibonacci retracement of its decline last week, after it failed to breach that level on Tuesday. SPAIN WORRIES Concerns are growing that Spain could resort to requesting international aid to help restore health to its ailing banking sector. There is also a risk that Greek elections later this month could lead to Greece leaving the euro. On Tuesday Spain's treasury minister Cristobal Montoro said the country was losing access to funding markets. Sentiment was not helped as Moody's Investors Service cut the credit ratings of several German banks on Wednesday, citing the risk of further shocks from the debt crisis. "Bleak as the euro area outlook is, it could easily get worse after the Greek election on 17 June and there may be an argument for the ECB keeping its powder dry," said James Nixon, chief European economist at Societe Generale. "We believe the ECB is increasingly concerned by the moral hazard actions. Each time it intervenes it merely eases the pressure on Europe's political leaders." Against the yen, the euro rose more than 1 percent to 99.14 yen, away from Friday's 11-year low of 95.59 yen. The higher-yielding Australian dollar, which suffered a drop of over 6 percent against the U.S. dollar last month, jumped 1.3 percent to $0.9866 after data showed Australia grew well above expectations in the first quarter. This took it well above Friday's 8-month trough of $0.9581. The U.S. dollar rose by 0.5 percent against the safe-haven yen to 79.15 yen, helped after Japan warned it was ready to step in to curb the yen's appreciation. Link this Share this Digg this Email Reprints

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