SINGAPORE: The euro held steady on Friday, clinging to gains made the previous day after debt sales in Spain and Italy drew solid demand, with technical signals suggesting it may also get some reprieve versus the Australian dollar.
Spain sold twice the planned amount at its debt sale on Thursday and Italy's auction of short-dated debt also drew strong demand, raising expectations that an auction of Italian bonds later on Friday will also do well.
The common currency held steady at $1.2819. It rose 0.8 percent on Thursday, pulling away from a 16-month low near $1.2662 hit earlier in the week.
One possible resistance for the euro lies near $1.2860, near a low hit in late December that had previously been support, and there was talk of euro offers at levels around $1.2840 and $1.2860 from real money investors.
Against the Australian dollar, the euro rose 0.2 percent to A$1.2428, having bounced off a record low of A$1.2291 struck on Thursday.
While a sharp rebound in the euro is seen as unlikely, market players said the euro might get some reprieve against the Australian dollar in the near-term following its recent slide.
"We are thinking that the risk is you have a small bounce," said Dhiren Sarin, chief technical strategist Asia FX for Barclays Capital in Singapore, adding that the euro's rise against the Australian dollar the previous day produced some bullish technical signals.
For example, moves in the relative strength index (RSI), an indicator of market momentum, suggest that the near-term outlook for euro/Aussie may be turning less bearish, Sarin said.
"Momentum started to tick higher, despite price having posted a new low... So it seems like the trend is faltering a little bit," he said.
"Near-term the risk is a little bit of an unwind as the market had gone a bit ahead of itself," Sarin said, adding that euro/Aussie was likely to face resistance at A$1.2690 or so, near its 21-day moving average.
ECB
The European Central Bank kept interest rates unchanged at 1.0 percent on Thursday and said its flood of cheap 3-year loans was helping banks, adding that the euro zone's economy was showing some signs of stabilisation in activity.
Indeed, analysts said some of the near half a trillion euros of three-year funds injected by the ECB last month probably went into supporting Thursday's debt auctions.
"If you look at not just yesterday's auctions but the recent auctions as a whole, by and large they've gone pretty well. Certainly, there hasn't been the degree of panic that many in the market anticipated," said Todd Elmer, currency strategist at Citi in Singapore.
"I think that ECB actions have been a key component in reducing tail risk associated with the crisis," he said, referring to the ECB's recent monetary easing and liquidity provision measures.
Still, the euro is likely to remain pressured by concerns about the outlook for the euro zone's economy, and a sharp rebound in the common currency seems unlikely, Elmer said.
"I think the weakness in the euro that we're seeing in large part reflects the increased focus in the market on the cyclical weakness that we're seeing in Europe and it's likely to persist for quite some time," he added.
In addition to Italy's debt auction later on Friday, traders said the market will be looking at Greece's ongoing negotiations with private sector bondholders on a debt swap deal.
Athens needs to hammer out a deal in order to secure international aid and avoid a messy bankruptcy when a major bond redemption comes due on March 20.
Any positive news on that front should see euro gains extend, analysts at BNP Paribas said.
"Any deal which paves the way for an agreement on a second bail out and the removal of immediate Greek euro exit risk, should be euro positive," they said.
But traders warned the longer-term outlook for the euro looked anything but hot given that the euro zone debt crisis remained unresolved. They also noted France's triple-A credit rating by Standard & Poor's was still hanging in the balance.
Societe General analysts have revised down their forecasts for the euro, expecting it to reach $1.15-1.20 in the first half of this year from an earlier target of $1.25-$1.30 range.
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