The euro edged higher against the dollar and the yen on Tuesday but touched a record low versus the Australian dollar and looked set to remain under pressure in 2012 on worries over Europe's debt crisis. The euro gained a bit of reprieve as a rise in Asian equities underpinned risk appetite and spurred short-covering, helping it stay above an 11-year low against the yen touched the previous day.
Still, worries about high sovereign debt levels and lack of policy solutions to the region's 2-year-old debt crisis were expected to push the euro lower in the coming weeks and months, even if short-covering may offer the euro some intermittent support. "The concerns that investors have, have certainly not gone away at all," said Callum Henderson, global head of FX research with Standard Chartered Bank in Singapore. The euro rose 0.3 percent to $1.2977, but stayed within striking distance of its 2011 trough of $1.2858 hit last week on trading platform EBS.
Against the yen, the euro rose 0.2 percent to 99.67 . It fell to as low as 98.71 yen in holiday-thinned trade on Monday on trading platform EBS, its lowest since December 2000. A trader for a Japanese bank in Singapore said there were likely to be options-related stop loss offers near 98.50 yen, while some stop-loss bids were lurking above 100.50 yen.
"Positioning among traders, especially short-term players, is tilted toward being short the euro on the crosses," the trader said, adding that the euro might rise to around 102 yen relatively easily if short-covering gains sustain.
The euro's slide this week to an 11-year low against the yen is likely to cause further pain to Japanese exporters. A number of big exporters have their euro/yen rate assumptions for the six months to March at levels between 103 yen to 110 yen. Still, currency traders are not too worried about the possibility of Japanese intervention to lift the euro versus the yen at this point, said the trader for a Japanese bank. Earlier on Tuesday, the single currency reached a record low on the Australian dollar right below A$1.2600.
It was last at A$1.2609, having shed more than two cents in the past week. Technical charts point to further downside with a test of A$1.2500 in sight, according to a trader. The Australian dollar rose 0.5 percent versus the greenback to $1.0291, helped by the rise in Asian equities. Data showing a rebound in China's services sector in December as well as data over the weekend that showed China's big manufacturers avoided a contraction in December, helped lend support to the Australian dollar.
January starts a very busy quarter for eurozone debt issuance, with Germany and France kicking off bond sales on Wednesday and Thursday. Italy and Spain will begin their 2012 funding next week. Investors are particularly concerned about Italy's cost of funding in the face of around 100 billion euros of redemption and coupon payments in the first four months of the year.
The euro may also get some reprieve if European policymakers make progress on steps to tackle the debt crisis in a series of meetings in January. France's Nicolas Sarkozy will meet German Chancellor Angela Merkel in Berlin on January 9 for talks that are likely to centre on new rules to enforce budget discipline across the European Union. In addition, finance ministers from the EU's 27 members will meet on January 23 before their leaders hold a summit a week later. The dollar dipped 0.2 percent to 76.78 yen, not that far from a record low near 75.31 yen hit in late October.