Euro recovers but seen vulnerable, yen stays weak

LONDON: The euro edged up on Thursday, staying above key chart support at $1.30 but it remained vulnerable after falls the previous day on talk of more monetary easing by the European Central Bank.

The yen steadied, though market participants still expected it to push lower due to aggressive monetary easing in Japan. But its falls were expected to be slow as the dollar faced stiff chart resistance before the 100 yen mark.

The euro was up 0.1 percent at $1.3034, regaining support after sliding by 1.1 percent on Wednesday, its biggest one-day percentage drop since last June.

It stayed above strong chart support at $1.30, having hit a low just above there on Wednesday at $1.3001.

The euro took a hit on Wednesday after ECB Governing Council member Jens Weidmann was quoted by the Wall Street Journal as saying the bank could ease further if economic data warrants it.

Analysts were sceptical about how negative this would be for the euro. Unlike Japan and the United States the ECB is not printing money via quantitative easing, which tends to weaken the currency. Some also believed a rate cut could be positive for the euro zone growth outlook.

However, worries about the euro zone's growth outlook and about the potential for a flare-up in the euro zone debt crisis meant any gains for the euro would be limited.

Neil Mellor, currency strategist at Bank of New York Mellon, said the euro had benefited from investors looking for alternative currencies to hold since the Bank of Japan's aggressive monetary easing caused the yen to depreciate.

"In periods of relative stability the euro can become the default option for investors who are looking for deep and liquid markets."

But he warned the euro remained at risk from euro zone troubles, with presidential elections in Italy beginning on Thursday and the Cyprus bailout still not completely resolved.

"I see $1.30 being tested and a potential break lower," he said. He said once the euro made a firm break below $1.30 it could target support around $1.27.

Against the yen, the euro was steady at 127.86 yen, staying clear of its recent three-year high of 131.11 yen.