Euro rallies broadly

The euro rose against the dollar for a third straight day on Wednesday though gains were still seen as temporary after a Portuguese debt sale failed to stem fears over the funding prospects of peripheral eurozone countries. Rising risk appetite boosted the euro, which climbed above $1.31 and broke above its 200-day moving average at $1.3071 on trading platform EBS after a 1.7 percent advance over three days.
Lisbon's debt auction saw healthy demand, with the average yield at the 10-year sale off, compared with a previous one in November, though 3-year bonds were sold at a significantly higher yield. "Markets are far from convinced that the crisis has begun, let alone ended," said Alan Wilde, head of fixed-income and currency at Baring Asset Management in London. Baring Asset Management oversees $50 billion in assets.
Attention now turns to Spain and Italy, which will sell debt in auctions on Thursday that will also be watched for signs of contagion. Analysts expect the sales to go without a major hitch, but at elevated costs. The euro last traded 1.2 percent higher at $1.3133 on Wednesday, after rising as high as $1.3138 on EBS. At the session peak, the euro traded at the 50 percent Fibonacci retracement of the move from the January 4 peak to the January 10 low.
Analysts said further euro buying probably would not take the currency much further than $1.3150 in the near term. Near-term support lies at about $1.2794, the 61.8 percent Fibonacci retracement of its rally from June to November. But a move above the 200-day SMA is seen as a first step toward improving sentiment toward the currency. The euro-dollar has now tested the 200-day simple moving average three times since November 29, according to EBS data.
If it can hold gains above that level, technical analysts will view it as long-term support. Conversely if it falls below and continues to fall, that level will become long-term resistance. This follows Japan's promise to support an upcoming bond sale by the fund, the European Financial Stability Facility.
Sentiment toward the eurozone single currency will remain subdued on persistent concerns that the debt financing problems affecting Portugal and Spain may spread, with some seeing Belgium in the firing line due to political instability. Traders still expect the euro to retest its four-month low around $1.2860 set on Monday, with a break likely opening the door to a fall toward $1.2645 and $1.2590 in the coming weeks.
The European Central Bank meets on Thursday and investors will watch if the bank signals further steps to help ease pressure on peripheral bonds. Against the yen, the euro was up 0.9 percent at 108.93 yen. The dollar fell 0.3 percent to 82.96 yen. The euro rose to a session high against the Swiss franc after the Swiss National Bank Vice Chairman Thomas Jordan said there are signs the Swiss economy will slow in 2011, though he still saw growth of about 1.5 percent. The dollar fell to a session low against the franc.