* Euro off 7-week lows, but view remains uncertain
* Asian sovereign demand helps euro pare losses
* Merkel says she's against debt restructuring
(Updates prices, adds quote)
By Gertrude Chavez-Dreyfuss
NEW YORK, May 16 The euro rebounded from
seven-week lows on Monday, boosted by sovereign demand after
last week's sharp sell-off, as optimism grew a European Union
meeting would support Greece and avert a restructuring of the
German Chancellor Angela Merkel said as much on Monday as
she voiced opposition to debt restructuring by any euro zone
country before 2013. Such a restructuring, she said, would be
"incredibly damaging" to the euro zone's credibility. See
"I expect the European finance ministers to show solidarity
and support for Greece," said Richard Franulovich, senior
currency strategist at Westpac in New York, which, he said,
should put a floor on the euro for now.
The impact of the arrest of International Monetary Fund
chief Dominique Strauss-Kahn on sexual assault charges, which
earlier dampened sentiment on the euro, faded as central banks
started snapping up the euro after it declined to the $1.4050
Strauss-Kahn had been due to join the meeting of euro zone
finance ministers on Monday to discuss the bloc's debt crisis
and how to handle Greece, which is struggling to meet the terms
of a 110 billion-euro EU/IMF bailout granted last year. Deputy
Managing Director Nemat Shafik will be at the meeting instead,
the IMF said.
Overall, the market mood remained cautious.
Market players said the euro's outlook remained uncertain
as meaningful progress on resolving the Greek crisis was
unlikely at Monday's meeting. Athens is struggling to put its
public finances in order under the EU/IMF bailout.
"There is clear support in the euro versus the dollar at
$1.41 after having been sold off so much over the last week and
a half, so there's a lot of bargain-hunting here," said Boris
Schlossberg, director of FX research at GFT in New York.
"But I don't know how firm the support is."
The euro rose as high as $1.42450 EUR=EBS on trading
platform EBS and was last at $1.42370, up 0.8 percent. Earlier,
it fell to $1.40481, the lowest since late March.
Traders said the euro's earlier fall was met with strong
demand from Asian sovereign accounts that were still keen to
buy on dips, while strong bids were seen toward $1.40.
The euro has fallen roughly 6 percent from a 17-month peak
of $1.4940 hit less than two weeks ago as peripheral debt
concerns resurfaced, but $1.40 seemed to be a key support
That level represents the euro's 200-week moving average,
while the 100-day moving average lies at $1.3922. Below that is
the 50 percent retracement of the euro's January to May rally,
On the upside, key resistance resided at $1.42539, the 23.6
percent retracement of the decline from the 17-month high at
$1.4940 in early May to Monday's low.
Camilla Sutton, chief FX strategist at Scotia Capital in
Toronto, said despite the slight pick-up in the single
currency, the market's bias remained at selling the euro for
now as investors tried to clear out long positions.
U.S. data last Friday showed speculators still holding
hefty long positions even after trimming them and other
higher-yielding currencies such as the Australian dollar last
week, a trend that suggests chances of more liquidation of euro
long positions. [IMM/FX]
UBS flows data also indicated that leveraged names sold
euro/dollar for a seventh straight week, while corporate
clients sold the pair for 20 weeks in a row.
UBS currency strategist Gareth Berry said the flows action
last week suggested it may be a dollar-buying story as well, as
the Federal Reserve ends its quantitative easing program in
June. Dollar buying by UBS clients hit a 13-week high last
Overall, risk sentiment seemed to have improved on Monday
as the New York session got under way, with gains in
higher-yielding currencies such as the Australian, Canadian and
New Zealand dollars.
The greenback rose against a basket of six major currencies
to a six-week high of 76.001 .DXY. earlier, but was last down
0.6 percent at 75.299.
(Editing by Leslie Adler)