February 8, 2012 / 1:15 PM / 6 years ago

FOREX-Euro at 2-mth high as Greek hopes fuel short squeeze

* Euro supported by Greek deal hopes, short-covering
    * Resistance seen near 100-day moving average around $1.3333
    * Dollar index at 2-month low; Aussie hits 6-mth high

    By Neal Armstrong	
    LONDON, Feb 8 (Reuters) - The euro rose to a two-month
high versus the dollar on Wednesday on optimism Greek leaders
are nearing a deal to secure a second bailout and avoid a messy
default, though analysts were sceptical of fresh gains with the
deal becoming priced in. 	
    Following a string of delays in negotiations, Greek leaders
will meet again on Wednesday in a bid to agreed yet deeper
austerity  in return for another international rescue package.
 	
     A sharp selloff in the single currency was seen as unlikely
even if talks drag on for another day, given sizeable euro short
positions that investors are reluctant to add to before knowing
the outcome of the negotiations. 	
    The euro rose to $1.3289, its highest level since
Dec. 12, before steadying around $1.3270. Topside resistance
came in at the 100-day moving average around $1.3333, while
option-related offers were reported ahead of $1.3300.	
     Morgan Stanley strategists said they established a short
euro position at $1.3250 and are targeting $1.2390 with a stop
at $1.3350, given the structural problems still facing the euro
zone even if Greece gets a second bailout, which they think is
largely factored in to the euro/dollar pair.	
    "If we see a deal being signed it's going to be euro
positive, but that's already priced in. It's going to be tricky
trying to pick the top but a rebound is going to fairly limited
and short-lived," said Morgan Stanley strategist Ian Stannard.	
    "The broader problems within the euro zone are going to be
even harder to tackle."	
    The latest positioning data showed currency speculators
trimmed euro short positions to 157,546 contracts, down from a
record 171,347 contracts the previous week. 	
    Euro resilience was also down to the European Central Bank's
provision of low-rate long-term funds to banks that ensured
ample liquidity in the banking system and was helping to prop up
risk appetite, Foley said.	
    The bank holds another three-year tender at the end of
February.	
    Some strategists said euro upside was limited as many short
positions had already been covered on Tuesday when the euro
posted its strongest daily gain since November. It climbed from
below $1.30 to $1.3270 on talk a Greek deal was imminent.	
     "There has been a propensity by the market in general to
look at the Greek scenario with a glass-half-full approach,
irrespective of the deadlines Greece has missed," said Jane
Foley, senior currency analyst at Rabobank.	
    "I think positioning has a significant part to play.
Although shorts are off their record levels, they are still
really extreme and people do not want to get caught in a rally."	
    Euro/dollar risk-reversals showed weakening demand to hedge
against a fall in the currency, with the one-month 25-delta at
1.55 in favour of euro puts versus 1.80 at the beginning of the
week.  	
	
    DOLLAR INDEX AT 2-MONTH LOW    	
    The euro also hit a seven-week peak of 102.449
against the yen, gaining strength on reported stop-loss buying.
It later eased back below 102.00 but traders said the outlook
was positive while above support around 101.46, the base of the
closely watched Japanese Ichimoku cloud indicator. 	
    The dollar was flat at 76.75 yen, retreating from earlier
highs above 77 yen as traders said model accounts sold from the
highs. 	
    Earlier on Wednesday, the yen showed little reaction to data
showing that Japan's current account surplus shrank sharply to a
15-year low in 2011. 	
    Better risk appetite and hopes Greece is close to agreeing
austerity measures helped to boost commodity currencies. The
Australian dollar rose to a six-month high of $1.0845,
stopping shy of a reported large option barrier at $1.0850.	
    Broad dollar weakness dragged the greenback to 78.443
against a basket of currencies, its lowest level in
around two months, after closing below its 100-day moving
average on Tuesday for the first time since late October.

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