Euro rises in London

The euro rose on Thursday, supported by a solid response to a Spanish debt auction with an improvement in risk appetite spurring investors to unwind bearish positions, although brief rallies are unlikely to break the single currency's downtrend.
Spain sold 6.61 billion euros of government bonds on Thursday, more than its announced target, in an auction which analysts said went well, supported by domestic banks and a pickup in appetite for riskier assets. That ensured the euro retained support after hitting two-week highs versus the dollar and the yen in earlier trade. Hopes the IMF could boost its resources to help countries deal with the euro zone debt crisis and some optimism over talks to avoid a chaotic Greek default were adding to the positive tone.
The euro was up around 0.4 percent on the day at $1.2902 after traders said stops were triggered on the break of Friday's high of $1.2879 en-route to a two-week high of $1.2914 on EBS. More stops were scattered above $1.2900, with scope for another squeeze of positions and a test of the January 5 high of $1.2946.
A daily close above the euro's 21-day moving average at $1.2875 would be a positive technical sign, while traders said an Asian sovereign account sold around the day's high. "The market is decidedly less short euros than it was but it is still short and there is scope for a bit of a squeeze from here," said Chris Walker, currency strategist at UBS. The euro moved further away from Friday's 17-month low of $1.2624, with bids reported at $1.2840 and downside stop-losses through $1.2800.
In the options market, one-month euro/dollar implied volatilities eased to 11.5 percent from 12.1 on Wednesday with front-end vols offered due to any large sell off in the euro. Against the yen, the euro fetched 99.14 yen after hitting a two-week high of 99.232 yen on trading platform EBS. It has gained more than 2 percent since hitting an 11-year low of 97.04 on Monday.
Against the yen, the dollar was flat at 76.83 yen. Traders though had one eye on next week's Bank of Japan policy meeting for potential action on the Japanese currency given its recent 11-year high versus the euro and its proximity to record highs versus the dollar of 75.31. The high-yielding Aussie dollar slipped to a session low of $1.0371 after data showed a surprise fall in Australian unemployment in December. It last traded at $1.0406, having slipped away from an 11-week high of $1.0450 set on Tuesday.