NEW YORK: The euro turned lower on Tuesday as an initial rally spurred by a bailout deal for Greece disappeared, with investors opting to sell into the euro's strength amid ongoing uncertainty about the country.
Euro zone finance ministers sealed a 130-billion-euro ($172 billion) bailout for Greece on Tuesday to avert a chaotic default next month after forcing Athens to commit to unpopular cuts and private bondholders to accept deeper losses.
The euro hit a session high of $1.3292 after the successful talks overnight, but traders said such an agreement had been widely flagged and the euro may struggle to rise above resistance around $1.3307.
"While the Greece deal removed a temporary risk, the good news was largely priced in ahead of the weekend, " said Camilla Sutton, chief currency strategist at Scotia Capital in Toronto.
"The deal was pretty much expected and the real surprise would have been if no deal was reached," she said. "There are still many hurdles to jump before Greece becomes a non-issue for markets and broader European problems should keep the euro weighed to the downside over the near term."
Sutton said her first quarter forecast for the euro is $1.29 and year-end target is $1.25.
In early New York trade the euro was 0.2 percent lower at $1.3218, partly pressured by selling by Middle Eastern investors.
Investors were concerned about how Greece would implement the harsh austerity measures demanded of it, while some also saw longer-term risks to the euro following an expected second injection of cheap funds by the European Central Bank next week.
"The news of the Greece deal was reassuring and welcome but not enough to take the euro out of its recent range. The market will remain sceptical about implementation and will focus on the LTRO (long-term refinancing operation) next week," said Audrey Childe-Freeman, EMEA head of currency strategy at JP Morgan Private Bank.
Traders expected demand to sell the euro ahead of the 100-day moving average around $1.3307 would hamper further gains. A break above there, however, may prompt renewed buying that could see it rise above the recent two-month high of $1.3322.
"If the euro breaks above the recent high of $1.3322 it opens the way for a move towards $1.35 and the temptation then will be to sell into the rally," Childe-Freeman said.
Near-term support for the euro was expected at the day's low of $1.3184.
The euro may get a lift if euro zone provisional purchasing managers' surveys on manufacturing and services activity on Wednesday and Thursday's German Ifo sentiment survey show some improvement.
YEN AT MULTI-MONTH LOWS
Approval of the Greek deal saw the euro hit a fresh three-month high against the yen. It pulled back from that high of 106.00 yen and in New York morning trade was up 0.1 percent at 105.58 yen.
The yen hovered near multi-month lows against most other major currencies as last week's surprise easing by the Bank of Japan prompted speculators to step up selling of the yen.
The dollar was last up 0.1 percent at 79.72 yen, not far from a 6 1/2-month high of 79.89 yen hit on Monday.
"Our end-year forecast of 80 yen has almost been hit already," said Mansoor Mohi-uddin, strategist at UBS. "The risks are now to the upside to this forecast with dollar/yen likely to trade in a 75-85 range in future compared to 75-80 previously."
Meanwhile, growing scepticism about the Greek deal hurt higher risk currencies, with the growth-linked Australian dollar down 0.7 percent at $1.0680.
It extended losses after minutes from the Reserve Bank of Australia's Feb. 7 meeting were initially perceived as dovish, with board members reiterating that a benign inflation outlook meant it could cut rates if necessary.
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