June 27, 2011 / 10:59 AM / 7 years ago

FOREX-Short squeeze lifts euro before Greek vote

 By Naomi Tajitsu	
 LONDON, June 27 (Reuters) - The euro recovered early losses
on Monday as investors covered short positions following broad
selling last week, but gains were capped due to concerns about
Greece's ability to repay its debt even if passes austerity
measures later this week.	
 Sovereign demand lifted the euro to a session high around
$1.42, but the single currency teetered near a record trough
versus the Swiss franc as Greece's parliament opened a debate on
harsh fiscal measures before a vote expected on Thursday.	
 Analysts said the euro would be vulnerable to selling on any
comments from Greek or other European officials which may cast
doubt on the ballot's outcome, although many in the market
believe the austerity measures will be approved.	
 Chris Walker, currency strategist at UBS, said the euro is
likely to receive a boost if the measures are passed, but argued
that the funding Athens would receive in return would buy only
limited time before more money is needed.	
 "If they pass the measures it will all be very well but the
problem will be in implementing the policy, and if you just push
the problem back two or three months, we'll find ourselves in
the exact same position in time," he said.	
 "We could see a little bit of a bounce in the euro when the
measures go through and if you're looking at a slightly longer
term, it's still fairly bearish."	
  He said the bank's flows showed real money investors and
speculators were significant sellers of euros in the past week,
and added that ongoing euro zone debt issues and a gloomier
global economic outlook would push the euro down to $1.35 in the
second half of the year.	
 By 1023 GMT, the euro was up 0.2 percent at $1.4214,
having spiked up as high as $1.4224.	
 The currency had clawed back from a session low of $1.4102
hit in early trade. Demand from sovereign entities triggered a
move higher, which was exacerbated as stop-loss orders were
 Traders scrambled to cover short positions after the euro
took a beating last week due to jitters that domestic turmoil in
Greece may threaten the country's chances of obtaining more
bailout funds.	
 Technical analysts said the single currency needed to close
above its 100-day moving average around $1.4195, a key
resistance level, to ensure a sustained rise higher, while a
fall below $1.4073 would take it to its lowest in a month.	
 The short squeeze in the euro supported the single currency
at around 1.1855 to the Swiss franc , but it continues
to  hover near a lifetime low of 1.1808 francs, after a dramatic
rally in the safe-haven Swiss unit since April.	
 The possibility of a Greek default has raised concerns about
the health of the European financial system and whether it can
withstand such a credit event. Such worries triggered a sell-off
in Italian banking shares late last week.	
 Overall, the dollar has benefited from broad risk aversion
stemming from the ongoing euro zone debt crisis, as investors
have been cutting back on short positions in the U.S. currency.
 Against a currency basket the dollar slipped slightly
to 75.485. But it hovered near 76.00, and a decisive break above
that level would take it to its highest in a month. Versus the
yen , the dollar rose  0.4 percent to 80.70 yen.	
 Analysts say ongoing uncertainty about debt problems in
Greece and the rest of the euro zone would support the dollar.	
 But they warn that the struggling U.S. economy is far from
stable, while Washington suffers from its own fiscal problem as
it approaches its debt ceiling again, which could haunt the
dollar in the longer term.	
 "The fortunes of the USD will be determined largely by the
mood in the euro zone, as the USD is now fulfilling the role of
"not being the EUR", capitalising on any bad news and retreating
when the market gets more hopeful," Credit Agricole analysts
said in a note.	
 "This has lent it more of a safe-haven status recently in
relation to peripheral stories, but its reaction to softer US
data remains ambiguous."	
 (Reporting by Naomi Tajitsu)	
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