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6:25, Friday 24 December 2010
* Euro (MCU – news) steadies after bouncing off lows vs Swiss franc,dollar
* Activity subdued as market in holiday mode
TOKYO, Dec 24 (Reuters) – The euro held its ground on Fridayafter rebounding from a record low against the Swiss franc and athree-week low against the dollar, but is expected to come underrenewed pressure after market players return from the Christmasbreak.
Traders said Thursday’s rebound in the euro was overdueparticularly against the Swiss franc after heavy buying by hedgefunds had helped it hit a series of record lows this week to thepoint where technical signals indicate an oversold market.
But little action took place in Asia with volumes drying upheading into the Christmas holidays. U.S. markets are shut onFriday along with many European centres.
“In this type of market condition, it’s very hard to take aposition because you’ll just get whipped out and that’s why thereare hardly any orders. People are waiting for January whenliquidity returns to work out what they want to do,” a trader ata U.S. investment bank said.
“The euro is still a sell-on-rally trade. anything above$1.32 is worthwhile selling in my view and probably there won’tbe any buyers until the low $1.30s, where we could see some Asiancentral bank interest.”
The single Currency stood at $1.3130 , off a three-weeklow of $1.3055 set on Thursday.
Versus the Swiss franc, it was at 1.2570 franc having bounced off an all-time low around 1.2440 set this week asthe pair’s oscillators, such as the RSI, showed the possibilityof a near-term oversold position.
UBS (DJCI – news) analysts said in a report to clients that the bank’s flowdata shows hedge funds have been adding close to record amountsof francs in the past eight weeks, with record buying bothagainst the euro and the dollar last week.
“The strong trend (in the Swiss franc) suggests that furthershort term franc strength may be likely. however, positioningpoints to increasing risks of holding aggressive longs,” theysaid.
Some traders also said there was scope for a significantshort squeeze in the euro against the dollar in the short term,given the downside momentum appeared to be waning.
The euro has managed to clutch to its 200-day moving average,now at $1.3091, for the past week, drawing some support fromcentral banks’ buying as well as from hopes that China may stepup its support for euro zone peripheral countries.
A breach of $1.3200 could trigger a move back towards theDec. 17 high around $1.3360.
Still, with no resolution in sight for the euro zone debtcrisis, analysts said it was only time before the market took theeuro lower.
Portugal was the latest euro zone member to have its ratingscut, with Fitch downgrading the country’s credit rating by onenotch to A-plus with a negative outlook. France, however, secureda thumbs up from S&P, which affirmed its AAA rating.
while the market is becoming accustomed to a rush of creditdowngrades, concerns that the euro zone may eventually need moredrastic measures, such as debt restructuring, are likely toshackle the euro, some market players also said.
The cost of insuring Greek debt in credit derivatives hit arecord high following an unsourced report from a Greek newspaperthat Athens was seeking a possible debt restructuring deal after2013. [GVD/EUR]
“The market got a bit of relief after euro zone countriessecured financing deals. But is it sustainable to pay interestrates of more than 5 percent when the economy is contracting?That question may come to surface next year,” said KimihikoTomita, head of forex at State Street Global Markets.
The dollar was at 83.03 yen , having hit 1-½ weeklows around 82.83 on Thursday. it was near the bottom end of awider range roughly between 82.40 and 84.40 seen since lateNovember (Berlin: NBXB.BE – news) .
in contrast, the Australian dollar has been going fromstrength to strength this week, hitting six-week highs at $1.0067on Thursday. it was last at $1.0030 and expected to holdin a thin range around $1.0000 and $1.0060 on the day.
Traders said interest from Real money accounts looking forexposure to high yields and the upbeat commodities story washelping to shore up the Aussie.
Crude oil hit two-year highs above $91 a barrel, whilecopper held near the record high set earlier in the week,underpinned by more evidence the U.S. economy was strengthening. (Additional reporting by Ian Chua; Editing by Chris Gallagher)
FOREX-Euro dangles above lows, but not out of woods
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