The euro rallied to an eight-week high against the dollar on Wednesday on reported Asian sovereign buying and continued short-covering, while traders succeeded in pushing the single currency above a key technical level. The shared currency climbed 1 percent on the day to hit an eight-week high of $1.3525 according to Reuters data, shaking off concerns that European policymakers were making slow progress in tackling the eurozone debt crisis.
But the euro was supported as the German government raised its forecast for 2011 economic growth on Wednesday following a strong reading of German economic sentiment on the previous day. Euribor rates rose further, reflecting higher interest rate expectations. Traders earlier reported euro buying by Middle and Far East accounts to take it above an options barrier said to be at $1.3500.
That was around its mid-December peak, which had been acting as key resistance. The single currency also broke above its weekly ichimoku cloud, a technical indicator of support and resistance levels, at $1.3510. The euro's next upside target lies at $1.3571, the 50 percent retracement of its November to January slide. Implied volatility in euro/dollar rose in short-dated tenors in tandem with the euro's climb, suggesting trade may become slightly more erratic in the near term.
The euro's gains helped push the dollar index to an eight-week low of 78.334, down 0.7 percent on the day. The euro briefly rallied to a one-month high against the Swiss franc of 1.2994 francs ahead of a press conference by the Swiss government, where some in the market has speculated officials may try to talk down the Swiss currency. It retreated after the economics minister said he was concerned about the currency's strength, while adding that Swiss exporters were not yet in a crisis due to a strong franc.
The Australian dollar was up 0.7 percent at $1.0050, having hit a two-week high of $1.0066. The dollar slipped 0.4 percent to 82.25 yen. It fell to a two-week low just above 82.00 yen, with traders reporting bids around that level preventing further losses.