SYDNEY: The euro got off to a subdued start in Asia on Monday after a short-covering squeeze late last week ran out of steam and news of an overwhelming election victory for Spain's centre-right opposition was greeted with cautious optimism.
The euro drifted up to $1.3524, from $1.3519 late in New York, but stayed well off Friday's peak of $1.3614. Traders said a move towards $1.3600 would be seen as a selling opportunity, while key support is found at the base of the weekly ichimoku cloud at $1.3407.
Against the yen, the common currency was steady at 103.96 .
The crushing victory in Spain could give the People's Party a freer hand in bringing in even harsher austerity measures to appease financial markets.
Yet markets found little to cheer about comments from Chinese Vice Premier Wang Qishan warning that a lasting global recession is certain to happen.
Wang's comments, published by the official Xinhua news agency, were the most bearish forecast ever by a top Chinese decision-maker about the world economy.
The dollar index eased 0.07 percent to 78.010, but remained within striking distance a five-week peak of 78.467 struck last Thursday.
Against the yen, the greenback fetched 76.87, having recovered from Friday's dip to 76.55, a post Oct. 31 intervention low.
Analysts at Barclays Capital said the European Central Bank's unwillingness to commit to large-scale bond purchases and Europe's deteriorating economic backdrop mean global financial markets will remain hostage to stresses in Europe.
"In this environment, we continue to favour being defensive in currency markets," they said, suggesting being long the dollar versus European currencies.
"Being short EUR/USD has been frustrating for several reasons, notably the repatriation of European bank exposures abroad .... we therefore prefer to be long the USD versus cyclical European currencies that are directly exposed to the euro area such as the SEK."
Commodity currencies were also having a tough time. The Australian dollar drifted around parity against the greenback, having plumbed a fresh one-month low at $0.9964 on Friday.
This week is shaping up to be a crucial one for Greece's new prime minister, who has to convince the IMF and the EU to give his country 8 billion euros it needs to avoid a mid-December default.
Lucas Papademos is scheduled to meet the EU's top leaders, Jose Manuel Barroso and Herman van Rompuy on Monday and the Eurogroup President Jean-Claude Juncker on Tuesday.
Across the Atlantic, the US congressional deficit-reduction committee has up to Wednesday's midnight deadline to come up with a deal to slash $1.2 trillion in federal spending over 10 years.
But after two months of talks, the committee looked set to concede failure, unable to bridge deep partisan differences over taxes and spending going into the 2012 elections.
"Reports suggest that Congressional leaders are looking for an alternative option and have started informal talks about a smaller deficit deal," BNP Paribas analysts said.
"If a smaller deficit deal is the end result, then the risk of further negative ratings actions is obvious. Such an event would likely propagate a risk-off sentiment and so support the USD by default."
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