Euro firm as cenbanks prepare for Greek poll

Fri Jun 15, 2012 1:25am EDT

* Cenbanks' liquidity pledge triggers short-covering

* Soft US data keeps hopes of Fed easing alive

* Dollar index hits 3-week low,

* Euro looking better on charts, rises above Ichimoku kijun line

* Yen gains after BOJ stands pat

By Hideyuki Sano

TOKYO, June 15 (Reuters) - The euro held firm against the U.S. dollar on Friday, reflecting hopes of central bank action to counter potential fallout from Sunday's crucial election in Greece, and after disappointing U.S. economic data.

G20 officials told Reuters that central banks from major economies stand ready to take steps to stabilize financial markets by providing liquidity and preventing a credit squeeze if the Greek election result roils markets.

New claims for U.S. state jobless benefits rose for the fifth time in six weeks and consumer prices fell in May, opening the door wider for the U.S. Federal Reserve to further ease monetary policy.

These factors prompted unwinding of market players' massively short positions on the euro, and drove the dollar to a three-week low against a basket of currencies, though worries about Spain's troubles in financing its debt remained in place.

The euro's latest rebound from its two-year low of $1.2280 on June 1 started after disappointing U.S. payroll data rekindled speculation of another stimulus from the U.S. Federal Reserve.

Although Chairman Ben Bernanke dropped no hint of an immediate action when he spoke last week, hopes for more policy steps were heightened after the UK government and the Bank of England unveiled a 100 billion pound ($155 billion) funding scheme for banks to boost credit on Thursday.

Thus the dollar slipped to its lowest level in three weeks against a basket of currencies, with the dollar index falling to as low as 81.703, a low since May 23.

Against the yen, the dollar fell 0.6 percent to one-week low of 78.83 yen after the Bank of Japan announced no policy change, though that is in line with market expectations.

But a further dollar further fall towards 78 yen is likely to raise caution over Japan's intervention.

The euro rose 0.1 percent to $1.2644, extending Thursday's 0.6 percent gains and edging near a high of $1.2672 hit right at the beginning of the week in a knee-jerk reaction to the announcement of a plan to support Spanish banks.

While the outcome of the Greek election on Sunday is seen as holding the key in the near term, the euro's technical outlook is improving, analysts said.

On daily Ichimoku charts the euro rose above major resistance from the kijun line, which stands at $1.2623 on Friday, for the first time since it began declining in May.(The kijun line is the mid-point between the highest high and lowest low of a particular instrument.)

"I'm a bit impressed by the euro's charts today. We may be approaching the time when we have to judge whether the euro's recovery from its bottom on June 1 may become more solid," said Teppei Ino, currency analyst at the Bank of Tokyo-Mitsubishi UFJ.

Analysts at RBC Capital Markets said in report that a close above resistance around $1.2625, its January low, is needed to sustain the euro's corrective rebound.

NO EXIT AFTER ALL?

Traders agree that the euro has scope for further gains if Greece's pro-bailout parties manage to win a majority in Sunday's election.

But as speculators' net short positioning in the euro hit a record high last week, some analysts say even if the leftist coalition, which opposes the bailout, wins, the euro could be resilient.

"The initial reaction would be negative (for the euro.) But what's likely to happen after that is a new government will keep its commitment to the euro and start negotiating with creditors," said Junya Tanase, chief currency strategist at JPMorgan Chase.

"In that case, those euro short positions that have been stemming from fear of Greece's exit will have to be wound back," he added.

Euro zone officials said that the euro zone might consider giving a new government in Athens some leeway on how it reaches their austerity target.

Commodity-linked currencies also held firm on hopes of more policy support for the global economy, with the Australian dollar staying near a one-month high of $1.0034 hit on Thursday. It last stood at $1.0025.

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