The euro extended gains in early Asian trade on Tuesday after remarks by the head of the eurozone bailout fund that the facility's guarantees will be raised triggered short-covering, though its advance could stall ahead of a confidence vote on the government in the Greek parliament.
The euro was lifted by a comment from Klaus Regling, chief of the European Financial Stability Facility, on Monday that the bailout fund's guarantees will be raised to 780 billion euro from the 440 billion that has just been rubber stamped by ministers. The euro rose 0.4 percent, a hefty jump for early Asian trade, to $1.4365, as short-term players tried to trigger stop-loss orders scattered around $1.4350, extending its recovery from a three-week low of $1.4073 hit last Thursday.
"It's all driven by short-term players. No one is buying the euro to hold it for a long time," said Tsutomu Soma, manager of foreign bonds at Okasan Securities. The euro's next resistance is seen at its 55-day moving average of $1.4413 and its June 15 high of $1.4451.
The euro's recovery started after leaders of Germany and France, long at odds over how to involve private holders of Greek bonds in a new rescue package for Athens, agreed last week on a mild solution favoured by Paris and the European Central Bank, thereby reducing investor fears of an immediate default by Greece.
The US central bank will start a two-day policy meeting, its first since US economic data started to take on a decisively weaker tone around a month ago. As the euro recovered, the dollar index lapsed to 74.823, from a top of 75.472. Still, one wild card for the euro is the confidence vote in Greece, slated to take place on Tuesday.
In the option market, one-month risk reversals were trading around 2.8 percent in favour of euro puts near their highest level since the euro zone's debt problems reached crisis point in May-June 2010 in a sign of continued wariness about the euro's downside risks. Implied volatility on one-month euro/dollar options stood above 13 percent, off its high around 14 percent last week but still way above around 11 percent early this month.
The dollar moved little against the yen at 80.22 yen. The Aussie bounced back to $1.0605 having again found support under $1.0500, helped by the news of a $10 billion bid for Australian brewer Fosters from brewing giant SABMiller. The Aussie stood flat at 85.00 yen off a three-month low of 84.10 yen hit on Monday in the wake of a fall in regional shares.