* Euro recovers vs dollar as Fed meeting eyed
* Australian dollar rises to 6-week high vs dollar
* Euro zone data, news add to bearish picture
By Nia Williams
LONDON, June 19 The euro climbed against the
dollar on Tuesday, shrugging off a weak German economic
sentiment survey as speculation the U.S. Federal Reserve may
ease monetary policy lent support to perceived riskier
Gains looked vulnerable to the stream of negative news
coming out of the euro zone, as wary investors awaited the
result of Greek coalition negotiations that may lead to the
country's bailout terms being renegotiated.
But in the near-term the euro could hold steady on
expectations the Fed will extend its long-term bond-buying
through Operation Twist by a few months from the current
deadline of June after a series of disappointing U.S. data,
The euro was last up 0.3 percent on the day at
$1.2622, with support seen around $1.2536, the trendline drawn
below daily lows from June 1, and the 21-day moving average at
"It's quite possible the euro will stay reasonably well
supported and if the Fed do something we could see a temporary
spike higher. Operation Twist is close to market consensus but
may give the euro a bit of a short-lived boost," said Paul
Robinson, head of European FX research at Barclays.
Strategists said the euro would struggle to rally beyond the
one-month high of $1.2748 posted on Monday after a win for
pro-bailout parties in the Greek election, given the dire
economic outlook and worries about the Spanish banking system.
News that a second, more detailed audit of Spanish banks
would be delayed until September fuelled bearishness towards the
euro zone's fourth-largest economy, whose 10-year borrowing
costs have ballooned above 7 percent.
Spain's Treasury sold 12- and 18-month debt on Tuesday at
higher yields of over 5 percent and will sell between 1 billion
and 2 billion euros of bonds on Thursday.
Investors were also unnerved after a German court said the
government had not consulted parliament sufficiently about the
configuration of Europe's permanent bailout
"The market has taken this negatively," said Gavin Friend,
currency strategist at National Australia Bank, referring to the
comments from the German court.
"We would like more details but the market wants to shoot
first and ask questions later. This could curtail the ESM's
powers and comes during nervous times when the impasse between
the German view and that of the peripherals and the world is
The euro fell briefly after the German ZEW survey, which
showed economic sentiment posted its biggest monthly drop since
1998 in June in a sign that even the bloc's strongest economy
was not immune from the crisis.
FED EASING EYED
The Fed's rate-setting committee starts its meeting on
Tuesday and a few market players have speculated it could opt
for a third round of quantitative easing as Europe's troubles
pose a risk to growth in the world's largest economy.
Another round of monetary stimulus would weigh on the U.S.
dollar and boost growth-linked currencies like the Australian
dollar, traders said.
The dollar index which measures the greenback against
a basket of major currencies was down 0.2 percent at 81.763,
having struck a one-month low of 81.266 on Monday.
The dollar edged lower against the yen, easing 0.3 percent
to 78.88 yen and a drop below 78.61 yen will take it to
its lowest in two weeks.
The dollar's move lower came as interest rate differentials
moved against it on expectations of more Fed easing. Those
expectations saw the growth-related Australian dollar
jump to a six-week high of $1.0147.
Against the backdrop of slowing growth the world's major
economies, or G-20, were set to urge Europe to take "all
necessary policy measures" to resolve its woes and U.S.
President Barack Obama requested a meeting with its leaders.