Euro slide pauses in Asia

The euro was poised to end its worst week in about three months on an upbeat note, taking heart from light short-covering in most riskier assets on Friday on the back of a well-bid Spanish bond sale and solid US economic data. But the mood remained brittle with possible cuts in the credit ratings of eurozone countries looming after a key EU summit last week offered little respite to turbulent eurozone bond markets and cash-starved European banks.
This yanked the legs from under the currency that had until then remained surprisingly resilient, dragging it 2.7 percent down on the week - the biggest drop since early September - and pushing yields on 10-year Italian bonds above 7 percent for the first time in two weeks.
On Friday, the euro was supported at $1.3028, coming off an 11-month low of $1.2945 hit earlier in the week. Thursday's trading range for the euro was well within its band from Wednesday, suggesting its downside momentum has waned - for now. "My sense is that the market is satisfied, having driven the euro below the important $1.30 support level earlier this week. But most people are thinking it's going to hit $1.25 within the January-March period," said Michiyoshi Kato, a senior trader at Mizuho Coporate Bank.
Kato said the euro is vulnerable as the risk of downgrades looms large for the region and investors fear some states may develop cold feet with regard to the proposals on a tighter fiscal regime that were the centerpiece of the summit. At one point the euro climbed as high as $1.3045 on dip-buying from hedge funds, but it stalled ahead of a layer of offers at $1.3050-60, placed below moderate resistance around $1.3065 - a 38.2 percent retracement of its December 8-14 slump.
The euro nursed heavy losses against the Swiss franc after the Swiss National Bank held its cap on the franc at 1.20 per euro, knocking back speculation that it might try to deter investors further from seeking safety in the currency. The common currency fell more than 1 percent to a six-week low around 1.2215 francs, before steadying at 1.2233 francs. The dollar shed more than 1 percent to 0.9388 francs, retreating from a 10-month peak of 0.9548.
The bounce in the euro saw the dollar index fall 0.4 percent to 80.20, off an 11-month high of 80.730 set on Wednesday. The index, however, remained well above resistance at the top of the Ichimoku cloud on the weekly chart, which came in at 79.56. Commodity currencies received a solid fillip from a broadly softer dollar, dip-buying and stronger bourses with the Australian dollar popping back to $0.9967, returning from a two-week low of $0.9862. It shied away from tackling immediate resistance at Thursday's high of $0.9990. The New Zealand dollar was also well bid, recouping most of the previous day's losses. It added 0.8 percent to $0.7590.