Reuters: US Dollar Report: FOREX-Euro gains on short-covering as Australia GDP boosts sentiment

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FOREX-Euro gains on short-covering as Australia GDP boosts sentiment Jun 6th 2012, 03:24 Tue Jun 5, 2012 11:24pm EDT * ECB policy meeting in focus * Aussie jumps as Q1 GDP comes in above f'cast By Antoni Slodkowski TOKYO, June 6 (Reuters) - The euro gained on short-covering on Wednesday after riskier assets rallied following strong growth data from Australia, recouping some of the losses sustained on Spain's warning it was losing access to credit markets. Traders were cautious ahead of a European Central Bank policy meeting, with some positioning for an interest rate cut, although most expected the bank to hold fire and keep rates at 1.0 percent. "With intense political negotiations going on, the ECB may find it difficult to move decisively to boost the European bond market. I also don't think it will cut rates," said Sumino Kamei, senior currency analyst at the Bank of Tokyo-Mitsubishi UFJ. G7 finance ministers took no steps to assuage fears about Europe's debt crisis on Tuesday, while European Union leaders appeared to be working towards a plan for deeper political integration to underpin the future of the euro. Economists view the decision whether to cut rates as one of closest calls in years, with awful data in recent weeks leaving it facing a far harsher euro zone recession than imagined. "If the bank takes no action, it is likely to disappoint markets and we may see another bout of euro selling," Kamei said. The single currency rose 0.3 percent to $1.2493, holding well above a two-year low of $1.2288 plumbed last Friday. UNRAVELLING Markets are on tenterhooks as Spain scrambles to avoid becoming the fourth euro zone nation to ask for a bailout, while Greece's June 17 election could yet drive it out of the bloc, potentially unravelling the whole project. On the daily Ichimoku chart, the tenkan line at $1.2457 is poised to provide immediate support. The euro has emerged and mostly held above it for the last two days, its first such foray in about a month. Strong resistance looms at $1.2545, the 76.4 percent Fibonacci retracement of its decline last week. The currency failed to breach that level on Tuesday. Against the yen, the single currency rose 0.4 percent to 98.36 yen, moving off Friday's 11-year low of 95.59 yen. Other currencies benefiting from a lightening of very bearish positions included the embattled Australian dollar, which suffered a drop of over 6 percent last month. It rallied more than one percent to as high as $0.9853 after data showed Australia's growth beat expectations, lessening the need for deep interest rate cuts. This helped it stay well off Friday's 8-month trough of $0.9581. Part of the Aussie's resilience reflected the Reserve Bank of Australia's (RBA) decision on Tuesday to trim interest rates by 25 basis points, instead of a more aggressive half-a-percentage-point move. With the euro gaining ground, the U.S. dollar fell against a basket of major currencies. The dollar index dropped 0.2 percent to 82.556. Against the yen, the greenback held steady at 78.77 after Japan signalled it was prepared to intervene to curb strength in its currency. That threat saw the yen ease broadly the day before. Some market players are buying short-term dollar/yen calls to bet on, or hedge against intervention, keeping the one-week risk reversal spread at its highest in favour of dollar calls in six months. Link this Share this Digg this Email Reprints

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