Euro, Aussie hit by wave of profit taking post ECB

SYDNEY Wed Feb 29, 2012 5:50pm EST

A picture illustration of  U.S. dollar, Swiss Franc, British pound and Euro bank notes, taken in Warsaw January 26, 2011.  REUTERS/Kacper Pempel

A picture illustration of U.S. dollar, Swiss Franc, British pound and Euro bank notes, taken in Warsaw January 26, 2011.

Credit: Reuters/Kacper Pempel

SYDNEY (Reuters) - The euro and commodity currencies nursed heavy losses in Asia on Thursday as investors cut bullish positions after key events including the European Central Bank's cash injection passed without surprise.

In a classic buy-the-rumour-sell-the-fact move, the euro slumped from near three-month highs after European banks snapped up 530 billion euros of cheap three-year funds from the ECB. That amount was largely in line with market consensus.

The single currency last stood at $1.3328, having dropped more than 1 percent from a high of $1.3485 on Wednesday. It was still up nearly 2 percent for all of February.

Immediate support is seen at $1.3321, the Feb 9 high, and $1.3293, the 100-day moving average.

"The correction in EUR/USD and global risk remains technical at this point, but the appeal of the euro as a funding currency is steadily growing relative to the U.S. dollar," said Sebastien Galy, senior currency strategist at Societe Generale.

"EUR/USD is holding the support of its upward channel since January. Without Central Bank diversification support, the odds are that it should break lower. Some profit taking in Asia is likely to do the trick as it will bid the U.S. dollar."

Markets had bought the euro and commodity currencies ahead of the well-flagged ECB event, believing those funds would help ease funding strains in the banking system and shore up the euro zone sovereign bond market.

Another closely watched event on Wednesday that did nothing to stop the reversal of fortunes in risk assets was U.S. Federal Reserve Ben Bernanke's testimony. He gave a tempered view of the U.S. recovery, but stopped short of signaling more stimulus.

The Australian dollar tumbled more than a full cent to $1.0724, from a six-month peak of $1.0857, while the New Zealand currency also skidded from six-month highs of $0.8471, to reach $0.8339.

All this fuelled a rebound in the U.S. dollar from near three-month lows. The dollar index .DXY rose 0.7 percent to 78.811. The greenback also shot up a full yen to 81.22, nearing a nine-month peak of 81.61 set recently.

Caught up in this unwinding of positions, gold fell an eye-watering 5 percent in its biggest one-day slide in three years.

With both key events out of the way, markets will be back to watching economic data. On offer is the latest reading on factory activity in Asia, Europe and the United States. China's PMI manufacturing report is due at 0100 GMT.

Any disappointment could give the current downward correction in risk assets further momentum, traders said.

Still, the ECB's injection of about a trillion euros of cheap three-year funds (LTRO) have been particularly important in backstopping euro area banks, and helping them negotiate an important refinancing hump, Barclays Capital analysts said.

"The generally positive mood in risky assets - which has been helped by the LTROs as well as a number of other factors including the economic data, and investor positioning - is likely to continue in our view," they wrote in a report.

(Editing by Wayne Cole)

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