Reuters: US Dollar Report: Rpt-FOREX-Euro gains as investors cover bearish bets on euro zone hopes

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Rpt-FOREX-Euro gains as investors cover bearish bets on euro zone hopes Jun 4th 2012, 18:38 Mon Jun 4, 2012 2:38pm EDT * Euro rallies vs dollar, yen * G7 finance ministers, cenbank governors to hold call Tuesday By Julie Haviv NEW YORK, June 4 (Reuters) - The euro rebounded against the dollar and the yen o n M onday as investors pared bearish bets on hopes that European authorities may be able to keep the region intact, although Spain's ailing banks and slowing global growth should cap the currency's gains. The euro, which was ripe for a bounce given a record high in net speculative short positioning, was buoyed by news that France and the European Commission signaled their support for an ambitious plan to use the euro zone's permanent bailout fund to rescue stricken banks. Separately, finance ministers and central bank governors of the Group of Seven leading economies will hold a conference call on Tuesday morning to discuss the European debt crisis. But there will be no Group of 20 ministerial call. While European officials are trying to reassure investors they can contain an escalating crisis, many market participants remain bearish on the single currency and believe the euro's strength should prove temporary. "On immediate glance this small bounce in euro/dollar looks very similar to the corrective bounce witnessed in mid-May, which subsequently failed and opened the door for a move to Friday's low at $1.2286," said Gareth Sylvester, director at Klarity FX in San Francisco. "Accordingly, we would not put any real faith in a euro/dollar low having been set at this stage," he said. "In fact we would really need to see a break back above $1.2625/35 to begin to suggest that a short-term low had been seen and prompt a deeper correction." The euro last traded 0.4 percent higher at $1.2482, up from $1.2286 on Friday, its lowest since July 2010. Monday's peak of $1.2509 was a four-day high. With London markets closed for a bank holiday, volume was thin until the New York session. From a medium-term perspective, the broader risks suggest that the euro may head toward $1.20 and $1.18, Klarity FX's Sylvester said. Against the yen, the euro traded up 0.9 percent at 97.86 yen, well above Friday's 11-1/2-year low of 95.57 yen, according to Reuters data. Comments from European Central Bank policymaker Ewald Nowotny saying he supported the idea of a European banking union gave the euro an early boost. Spanish Prime Minister Mariano Rajoy on Saturday called for the establishment of a central authority to oversee fiscal policy in the euro zone, while Germany wants a big leap forward in euro integration. More insight on potential monetary easing may come from Wednesday's European Central Bank meeting, and markets are positioning for an outside chance of a rate cut. "The outlook of the euro will depend on how ready and willing the European Central Bank is to provide stimulus to the European economy," said Kathy Lien, director of currency research at GFT in Jersey City. "They (the ECB) have made it clear that they want the solution to come from Europe's leaders, but the recent deterioration in economic data and slide in asset prices makes easier monetary policy inevitable." On Thursday, Federal Reserve Chairman Ben Bernanke testifies before a congressional committee about the U.S. economy. Friday's weak U.S. labor market data has raised expectations of more Fed quantitative easing, a negative for the dollar. Against the yen, the dollar rose 0.3 percent to 78.30 yen , off Friday's trough of 77.65, its lowest since mid-February. Link this Share this Digg this Email Reprints

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