By Clare Connaghan
Of DOW JONES NEWSWIRES
LONDON (Dow Jones)–The euro bounced off near-16-month lows against the dollar in European trading Monday, but with regional worries lingering and a meeting between the leaders of France and Germany being watched, investor sentiment toward the single currency remained fragile.
The euro rose against the dollar, pound and yen after data showed German exports rose sharply in November, but some market participants played down the rally’s significance, citing record negative–or short–speculative bets against the euro, and the potential for a reversal of some of those bets.
“Against a backdrop of the market being extremely short of euro, that tells us it doesn’t take a lot to create a little bit of short-covering pressure,” said Jane Foley, a currency strategist at Rabobank in London. “While the euro will probably trend lower over the next quarter or so there will be days of short-covering pressure, purely because of market positioning.”
The euro’s gains helped to support other risk-sensitive currencies against the dollar, including the pound and commodity-linked currencies of Canada and Australia. However, a coming European Central Bank interest rate decision Thursday and concerns related to the huge funding requirements of some euro-zone states this year were seen capping these gains.
Commerzbank currency strategist Peter Kinsella said it was hard to see how the euro could meaningfully extend its gains under the circumstances. “Both Italy and Spain have to refinance significant levels of debt which will weigh upon sentiment. The threat of further ECB buying of peripheral debt will essentially lead to an increase of the ECB’s balance sheet, which does not augur well for the euro,” he said.
A string of gatherings to solve the European debt crisis and prevent a possible Greek default is taking place in Berlin this week with Chancellor Angela Merkel due to meet the head of the International Monetary Fund in Berlin Tuesday after talks with her French counterpart. And Wednesday, Merkel is due to meet Italian Prime Minister Mario Monti.
In emerging markets, the Turkish lira rose against the dollar after the country’s central bank sold 7 billion Turkish lira ($3.73 billion) in a one-week intraday repo auction.
The Hungarian forint held onto recent gains against the euro as hopes built that the government there will make concessions to secure an aid package from the IMF.
“The government appears to have bought a little time by indicating that it wants a speedy conclusion to negotiations with the IMF and EU for a precautionary loan and that it is now prepared to accept conditions,” said Don Egginton, head of modeling and emerging markets at Daiwa in London.
At 1229 GMT, the euro was trading at $1.27753 against the dollar, compared with $1.2716 late Friday in New York, according to trading system EBS. The dollar was at Y76.870 against the yen, compared with Y76.96, while the euro was at Y98.060 compared with Y97.92. The pound was at $1.5419 against the dollar, compared with $1.5420 late Friday in New York.
The ICE Dollar Index, which tracks the dollar against a trade-weighted basket of currencies, was at 81.110 compared with 81.267 late Friday in New York.
A summary of key levels for chart-watching technical strategists:
Forex spot: EUR/USD USD/JPY GBP/USD USD/CHF
Spot 1134 GMT 1.2753 76.80 1.5434 0.9528
3 Day Trend Bearish Bullish Bearish Bullish
Weekly Trend Bearish Neutral Bearish Bullish
200 day ma 1.3690 78.77 1.5871 0.8987
3rd Resistance 1.2896 77.34 1.5595 0.9669
2nd Resistance 1.2850 77.21 1.5524 0.9595
1st Resistance 1.2813 77.08 1.5468 0.9566
Pivot* 1.2743 77.09 1.5441 0.9545
1st Support 1.2697 76.60 1.5377 0.9505
2nd Support 1.2666 76.30 1.5363 0.9484
3rd Support 1.2588 75.31 1.5272 0.9414
Forex spot: EUR/GBP
Spot 1134 GMT 0.8262
3 Day Trend Bearish
Weekly Trend Bearish
200 day ma 0.8623
3rd Resistance 0.8372
2nd Resistance 0.8335
1st Resistance 0.8290
Pivot* 0.8251
1st Support 0.8221
2nd Support 0.8203
3rd Support 0.8137
-By Clare Connaghan, Dow Jones Newswires; +44 (0) 20 7842 9496, clare.connaghan@dowjones.com
(Jessica Mead, Emese Bartha and Dow Jones Technical Strategist Francis Bray in London contributed to this article.)
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