Euro steadies in Asia

The euro held steady above its recent one-month low on Friday, but market players were sceptical that it would see a sustained bounce due to uncertainty over whether Italy will make progress on fiscal reforms under new leadership. The euro has gained some reprieve after a sell-off earlier in the week when Italian 10-year bond yields shot above the 7 percent level that is widely regarded as unsustainable.
Relief that yields at an Italian bond sale on Thursday remained below 7 percent lent support to the single currency, as did signs of easing political deadlock in Rome and Greece. The euro was little changed from late US trade on Thursday, changing hands at $1.3621 and staying above a one-month low of $1.3484 touched on Thursday. For the week, the euro is still down about 1.5 percent.
"Euro, to me, is still very much a sell on rallies," said Mitul Kotecha, head of global foreign exchange strategy for Credit Agricole CIB in Hong Kong, adding that his bank's forecast was for the euro to drop to $1.33 by year-end. Market positioning in options suggests that investors are bracing for a further slide in the euro, with euro/dollar one-month risk reversals quoted at 4.25/3.75 in favour of euro puts.
That is close to the extreme levels seen back in September, before the euro hit a nine-month low of $1.3145 in early October. In a sign of bearish sentiment against the euro, some traders said hedge funds have recently bought euro puts with strikes around $1.26 that are due to expire in six weeks.
Closer to current levels, one possible downside target for the euro lies near $1.3405, the 76.4 percent retracement of the euro's $1.3145 to $1.4248 rally. Resistance on the daily Ichimoku chart, a popular technical analysis tool, lies near $1.3678, where the tenkan sen, or conversion line, now comes in. The euro held steady against the yen at 105.64 yen, staying above a one-month low near 104.74 yen hit on Thursday.
Daisuke Karakama, market economist for Mizuho Corporate Bank in Tokyo, said he thought there was a better than even chance of euro/yen dropping below 100 yen by year-end. The dollar dipped 0.1 percent versus against the yen to 77.54 yen. It dipped to as low as 77.49 yen at one point, the lowest since Japan's massive yen-selling intervention on Oct. 31.
On Oct. 31, Japan spent an estimated 7.7 trillion yen ($98.5 billion), a daily record for intervention, to curb the yen's strength. Market sources have told Reuters that Japan has probably conducted more intervention since Oct. 31. One possible support for dollar/yen lies near 77.43 yen, the 50 percent retracement of the dollar's rise on Oct. 31 from a post-World War Two record low near 75.31 yen to a three-month high near 79.55 yen.