Reuters: US Dollar Report: FOREX-Euro flat, recovery seen at risk without firm ECB action

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FOREX-Euro flat, recovery seen at risk without firm ECB action Aug 28th 2012, 00:59 TOKYO | Mon Aug 27, 2012 8:59pm EDT TOKYO Aug 28 (Reuters) - The euro barely moved in early Tuesday Asian trade, stuck near this week's lows, while the Australian dollar hit a fresh five-week low on worries about the extent of the slowdown in China. Some analysts say the single currency's recovery since late July, triggered by comments from European Central Bank chief Mario Draghi that the bank will do whatever it takes to save the euro, could peter out soon. "The euro had been bought on hopes after the ECB comments. But unless the market sees action to back up its words soon, the rally will fizzle," said Minori Uchida, chief FX strategist at the Bank of Tokyo-Mitsubishi UFJ. The euro traded at $1.2503, off its seven-week high of $1.2590 hit last Thursday, and near Monday's low of $1.2490. The ECB is expected to reveal further details of a new programme to lower debt yields of Spain and Italy after its Sept. 6 policy meeting, though its implementation is likely to start late September at earliest. While hopes that it will step in to buy short-term Spanish bonds if Spain requests a bailout have prompted a trimming back in bets against the euro in the past several weeks, it remains to be seen if this would be enough to win back investor confidence in southern European sovereign debt. In one possible positive technical sign, however, the euro might succeed in staying above the top of the cloud on the daily Ichimoku chart, which comes in at $1.2489 on Tuesday. A rise above the cloud is usually viewed as a major bullish sign. The Australian dollar hit fresh five-week low of $1.0358 , pressured by worries over the slowdown in China's economy as Shanghai shares hit fresh 3 1/2-year low on Monday. "Given that the Aussie's fair value based on purchasing power parity is around $0.70, a level above $1.05 would be difficult to maintain," said Tokyo-Mitsubishi's Uchida. "On the other hand, the Australian central bank is not as inclined to ease as the Fed and the ECB. There's buying in the Aussie by central banks which want to increase the Aussie in their foreign reserves. So I do not expect it to fall below parity against the dollar," he added. Against the euro, the Aussie hit a seven-week low of A$1.2068 per euro. The yen moved little, with the U.S. dollar fetching 78.72 yen, flat from late U.S. levels. The dollar hit a one-week low of 78.273 yen on Wednesday after minutes of the U.S. Federal Reserve's last policy meeting showed the bank is willing to adopt further easing but it has been edging up since then. Link this Share this Digg this Email Reprints

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