* Euro vulnerable to concerns about Cyprus, Spain, Italy
* Technical support seen around $1.3260
* Investors eye BOJ, G20 meetings later in week
By Nia Williams
LONDON, Feb 11 The euro hovered within sight of
a two-week low against the dollar on Monday as euro zone
political uncertainty curbed demand for the single currency.
Many strategists said the euro's retreat from a 15-month
high hit at the start of February was justified given the
weakness in the euro zone economy, as well as political risks in
Spain and Italy, and worries about Cyprus's bailout package.
Some market players were also cautious before a G20 meeting
later in the week where policymakers may air concerns about
recent euro strength and the potentially destabilising effect of
"currency wars", in which countries deliberately target lower
exchange rates to boost export competitiveness.
The euro edged up 0.1 percent on the day to $1.3381,
holding just above Friday's low of $1.3353, which was the lowest
level since Jan. 25. Morgan Stanley strategists said the euro
could pull back towards $1.3260, where there is support from the
50-day moving average.
The dollar index rose to a one-month high of 80.298.
"The pace of the euro's gains in January made me feel
uncomfortable, it was too far, too fast. We should have a period
of consolidation over the next few months," said Jane Foley,
senior currency strategist at Rabobank.
"But if news from Cyprus, Spain and Italy is not good we
could see $1.30 again."
Since hitting a peak of $1.3711 on Feb. 1, the single
currency has shed about 2.5 percent.
It sold off last week after European Central Bank President
Mario Draghi kept alive expectations of rate cuts and said the
bank would monitor the economic impact of a strengthening
There are growing worries about Spain as a scandal on secret
cash payments engulfed the prime minister, while confidence in
Italy has been shaken in the run-up to the Feb. 24-25 election.
A strong campaign by former Prime Minister Silvio Berlusconi
has opened up the race and threatened the prospects of a stable
government emerging after the vote.
There are also concerns about the terms of financial aid
package for Cyprus, a matter that will be high on the agenda at
a meeting of euro zone finance ministers in Brussels on
"Better financial conditions are likely to be offset by
rising political risks, market positioning and a weaker economy.
We expect the euro to be on a declining trend beginning in Q2,"
said Aroop Chatterjee, analyst at Barclays Capital.
With much of Asia shut for the Lunar New Year holidays,
moves in currency markets were muted on Monday, although traders
were braced for more volatility later in the week with U.S.
retail sales, European GDP data, and a Bank of Japan policy
meeting taking place.
BOJ MEETING EYED
The Bank of Japan is expected to keep monetary policy
steady, particularly as Japanese authorities have come in for
criticism for allowing the yen to weaken.
In thin trade the euro rose 0.3 percent to 124.29 yen
, pulling way from Friday's one-week low of 123.43.
The dollar climbed 0.3 percent to 92.93 yen, having
surged to a 33-month high of 94.075 yen last Wednesday. Market
players reported U.S. investors selling the yen.
In the past few months, the yen has slumped as Prime
Minister Shinzo Abe put intense pressure on the central bank to
take aggressive easing measures to revive the economy.
The Australian dollar dipped 0.3 percent to
US$1.0276, nearing a three-month low of $1.0256 hit last week
after the Reserve Bank of Australia left the door open to more
(Additional reporting by Ian Chua/editing by Chris Pizzey,
London MPG Desk, +44 (0)207 542-4441)