Reuters: US Dollar Report: REFILE-FOREX-Euro holds gains after ECB rate decision, awaits Draghi

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REFILE-FOREX-Euro holds gains after ECB rate decision, awaits Draghi Jun 6th 2012, 12:18 Wed Jun 6, 2012 8:18am EDT * Euro steady around $1.25 after ECB decision * Any decision to remove tail risks could help euro * Aussie jumps as Q1 GDP well above forecasts By Anirban Nag LONDON, June 6 (Reuters) - The euro held steady on Wednesday after the European Central Bank left interest rates unchanged, as expected, with investors gearing up for it to signal monetary stimulus to bolster the struggling economy and restore confidence in the euro zone. With the euro and the region's stock markets falling sharply in recent weeks given Spanish banking sector problems and the possibility of Greece leaving the euro zone, some investors are expecting the ECB to reassure investors by announcing fresh measures. All eyes will now be on the press conference at 1230 GMT by ECB President Mario Draghi and any announcement that they are considering cutting interest rates or restarting bond purchases in the secondary market could give the euro a lift, traders said. The common currency could also get a boost if the ECB hints it could launch another round of cash injection, like it did in December and February. The euro was up 0.3 percent against the dollar at $1.2495, broadly steady from before the ECB rate decision and well above a near two-year low of $1.2288 plumbed last Friday. Traders said any gains in the currency were likely to run into offers up to $1.2540. There is also 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. Above that, there is resistance at the May 29 high of $1.2575. "The market will be looking for any guidance on rate cuts and on liquidity injection at the press conference," said John Hardy, FX strategist at Saxo Bank. "Any guidance like that could provide a bit of a relief to the euro, but we do not think that it will have a lasting impact on the euro. Printing more euros cannot be bullish." The ECB's decision comes a day after 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. 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. 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. "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. SPAIN WORRIES Against the yen, the euro rose more than 1 percent to a session high of 99.30 yen, away from Friday's 11-year low of 95.59 yen as hopes of a global policy action supported risk appetite. It was last up 0.85 percent at 98.88 yen. Despite the bounce, the prospects for the euro looked bleak in the medium term as concerns are growing that Spain could resort to requesting international aid to help its ailing banking sector. There is also a risk that Greek elections later this month could lead to Greece leaving the euro. And, highlighting the risks to the banking sector from the sovereign debt turmoil, Moody's Investors Service cut the credit ratings of several German banks on Wednesday. Latest industrial production data from Germany also suggested that Europe's largest economy was slowing down, all of which pointed to a weak euro. Meanwhile, 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. 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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