LONDON: The euro edged up on Friday after solid demand at a Spanish debt sale the previous day and hopes for a similar result at an Italian auction later triggered a squeeze of short positions, but investors were sceptical that the rally would be sustained.
Hopes that Greece may soon reach a deal with private creditors for a voluntary debt exchange also helped boost the euro, traders said, though uncertainty over the long-term future of Greece's finances kept the rally in check.
"The euro has risen after yesterday's auctions were much better than expected but its only a correction so far and there's no serious fresh buying," said Manuel Oliveri, currency strategist at UBS in Zurich.
"An agreement on the Greek debt swap is unlikely to be enough to bring Greece back to a sustainable path."
A deal with private creditors to voluntarily write down at least half the value of their Greek sovereign bonds has a good chance of happening in the coming days, the chief executive of French bank Societe Generale told newspaper Les Echos.
On Thursday private sectors bondholders warned time was running short to clinch a deal on a voluntary debt exchange, while euro zone sources said Athens might force reluctant investors to accept losses.
The euro was up around 0.2 percent for the day at $1.2846 after rising to the day's high in Asia of $1.2879, above a 16-month low of $1.2661 hit on Wednesday.
Traders reported strong offers around the day's high with stop-losses at $1.2905. Resistance was the euro's 21-day moving average at $1.2931, with further offers around $1.2940/50.
The euro was on more stable footing after highly indebted Spain sold twice the planned amount at its debt sale on Thursday and Italy's auction of short-dated debt also drew strong demand, raising expectations that an auction of Italian bonds later on Friday will ago well and ease pressure on bond yields.
Against the Australian dollar, the euro steadied at A$1.2407 , having bounced off a record low of A$1.2291 struck on Thursday.
ECB
The European Central Bank kept interest rates unchanged at 1.0 percent on Thursday and said its flood of cheap 3-year loans was helping banks, adding that the euro zone's economy was showing some signs of stabilisation in activity.
Indeed, analysts said some of the near half a trillion euros of three-year funds injected by the ECB last month probably went into supporting Thursday's debt auctions.
"I think that ECB actions have been a key component in reducing tail risk associated with the crisis," said Todd Elmer, currency strategist at Citi, referring to the ECB's recent monetary easing and liquidity provision measures.
Still, the euro is likely to remain pressured by concerns about the outlook for the euro zone's economy, and a sharp rebound in the common currency seems unlikely, Elmer said.
Investors are reluctant to enter into fresh long euro positions with so much uncertainty still surrounding the debt crisis and a precarious outlook for the euro zone economy which have been pulled the euro to multi-month lows versus the dollar and a decade low versus the yen.
"I don't think the euro can go much higher from here as there's not much sustainable improvement in interest rates or inflation expectations. The euro zone is still not attracting any structural inflows," said Oliveri at UBS.
The euro was up 0.1 percent at 98.56 yen, holding above this week's 11-year low of 97.28.
The dollar was steady at 76.71 yen, while it eased slightly to 80.683 versus a currency basket, below a 16-month high of 81.493 hit Wednesday after a run of robust US economic data boosted hopes for its economy and tempered expectations for more monetary easing.
Comments
Comments are closed.