Euro climbs in New York

The euro climbed against the dollar on Thursday in volatile trading, snapping two days of losses, with the single currency boosted by institutional buying to adjust short positions following generally solid Spanish bond auctions this week. News that the International Monetary Fund has secured commitments of about $320 billion in funding to help shield member economies from the debt crisis in Europe gave the euro additional support, some analysts said.
Analysts also talked of large repatriations of euros by European banks to increase capital, which also bolstered the currency. Spain has ordered its battered banking sector to reinforce balance sheets as a correction in the housing market continues and the central bank forecasts lenders will need some 53.8 billion euros ($70.7 billion) to cushion against bad debt. But some doubt that amount will be enough.
There is still a lot of scepticism in the market about the liquidity in the eurozone financial system and the sustainability of the region's debt. On the other hand, some institutional investors are less pessimistic and are willing to get out of their short positions and stay neutral. "There are a lot of people, mostly in the real money community, who are short euros, but who realise that these are stale positions," said Douglas Borthwick, managing director at Faros Trading in Stamford, Connecticut.
In late afternoon New York trading, the euro rose 0.1 percent to $1.3131 after earlier hitting a session low of $1.3068 with the session peak at $1.3164. Against the yen, the euro climbed 0.4 percent to 107.07 yen. Positioning indicators also suggested that market players were already short of euros versus the dollar, which could limit short-term falls.
Toronto-based online currency trading firm Oanda Corp data showed 56.56 percent of positions on the euro/dollar are short or bet that the euro will fall against the dollar. Traders, however, said they were inclined to sell into any euro rallies, with the rise in Spanish and Italian yields undermining any optimism from the auction. Earlier, market talk of a French downgrade had also undermined sentiment toward the common currency.
"The thought is that banks are repatriating funds to shore up capital, which if true is more negative than positive for the euro because it means that the euro/dollar is being artificially held up by short-term unsustainable flows," said Kathy Lien, director of FX research at GFT in Jersey City, New Jersey.
The euro modestly sold off after a report showed that weekly US initial jobless claims fell less than expected, which slightly dampened risk appetite. A lower-than-expected reading of business conditions in the US Mid-Atlantic region and a surprise fall in US existing home sales added to the weakness. But the euro held above strong chart support at $1.30 even amid concerns that Spain's high level of debt, with its economy faltering, could put the euro back under pressure and potentially take it toward the 2012 low of $1.2624. The dollar rose 0.3 percent to 81.54 yen.