Euro recovers versus dollar

The euro recovered from a four-month low against the dollar on Monday though gains are not expected to hold given resurgent concerns about indebted eurozone countries and talk that Portugal will need a bailout. The recovery in the euro, which fell below $1.2900 on trading platform EBS for the first time since September, was partly helped by gains against the Swiss franc on speculation the Swiss government may take new measures to rein in currency strength.
"You could argue the euro is a little bit oversold on the short term," said John McCarthy, director of foreign exchange trading at ING Capital Markets in New York. "There's been a little bit of euro buying and profit-taking on short euro crosses. But the euro is still relatively well offered. There's obviously renewed concern about Portugal."
A senior eurozone source told Reuters on Sunday pressure was growing on Portugal from Germany and France to seek financial help from the European Union and International Monetary Fund to prevent the debt crisis spreading. Germany denied the report. Portugal, Italy and Spain are all due to tap the bond market for funds this week. Investors were nervous about whether these highly indebted countries will be able to raise funds at sustainable levels in 2011.
The euro last traded up 0.4 percent at $1.2952 on EBS; it remained down about 3.2 percent for the first six trading sessions this year. Traders reported option barriers at $1.2850 and sovereign buy orders just above that level. Analysts said the euro's close below its 200-day moving average last week around $1.3075 was particularly bearish. The next key downside support lies at $1.2795, the 61.8 percent Fibonacci retracement of its rally from June to November.
"FX markets tend to boost the US dollar in the event of rising yields resulting from disappointing Treasury auctions," said Ashraf Laidi, chief market strategist at CMC Markets in London. Against the Swiss franc, the euro rose 0.3 percent to 1.2530 francs. The Swiss currency weakened after a report said the Swiss government will meet business leaders and trade unions next week to discuss the implications of the record-strong Swiss franc.
The growing pressure on Lisbon follows a sharp rise in Portuguese 10-year bond yields at the end of last week to euro lifetime highs above 7 percent, as investors worried about the prospect of up to 1.25 billion euros of bond supply that Portugal will offer at an auction on Wednesday.
Analysts said that if investors judge that the price Lisbon needs to pay to get funds is too high to sustain borrowing in the long term, Portuguese bonds may sell off quickly, forcing the country to seek emergency EU and IMF funds. Against the yen, the dollar slipped 0.5 percent to 82.72 yen on Monday, the second straight day of declines. Morgan Stanley notes currency speculators have been net long yen since June 2010, citing Friday's commitment of traders report.