Mon Jan 23, 2012 7:37am EST
* Euro rises to $1.3014 vs dollar
* Hopes rise before euro zone finmin meeting on Greece
* Dollar dented ahead of FOMC meeting
* Australian dollar hits near 12-week high vs U.S. dollar
LONDON, Jan 23 (Reuters) - The euro hit its highest
level in nearly three weeks against the dollar on Monday on
tentative optimism that Greece will cut a deal with its
creditors on a debt swap, prompting a squeeze in short
Market players were looking to a euro zone finance
ministers' meeting on Monday for a decision on the terms of a
Greek debt restructuring ministers would be ready to accept in
order to pave the way for Athens to access a second bailout
package and avoid a chaotic default.
However, the single currency was still vulnerable to renewed
weakness as uncertainties remained about the outlook for Greece
and other highly indebted euro zone countries.
Private creditors said on Sunday they had come to the limits
of what losses they could concede, putting the ball in the court
of the European Union and the IMF.
The euro was supported by investors taking profit on short
positions. Data showed speculators boosted net euro short
positions to a fourth straight record in the week to Jan. 17.
"IMM data shows short positions are extremely stretched and
we're seeing a squeeze today," said Lee Hardman, currency
strategist at BTM-UFJ.
The euro was up 0.4 percent at $1.3001 after hitting
its strongest since early January at $1.3014 on EBS. Traders
cited demand from Middle East accounts that lifted the currency
and helped to trigger stop-losses on the break of Friday's high
"The likelihood is that the (Greek debt) talks will converge
somewhere where a deal is still voluntary," said Ankita Dudani,
currency strategist at RBS.
Resolving the issue of a Greek debt swap is key to putting
Athens' debt on a sustainable path and avoiding a chaotic
default that could threaten the whole currency bloc.
Markets had hoped for an agreement over the weekend, and
analysts said they were still betting on a deal, leaving room
"It is uncertain what will happen with the restructuring of
Greek debt, and after that there will be tough negotiations with
the EU and the IMF about the next financing facility," said
Niels Christensen, currency strategist at Nordea in Copenhagen.
The technical outlook for the euro was improved by last
week's break above the 21-day moving average at $1.2870 for the
first time this year.
The common currency slumped to a 17-month low of $1.2624
earlier this month. Traders said a break back below $1.2870-80
could see major support at $1.2800-10 tested.
For the wider market, the Federal Reserve's two-day policy
meeting starting on Tuesday will be the major event. Although no
policy change is expected, the Fed could take the historic step
of announcing an explicit target for inflation as part of its
new communication strategy.
Traders said wariness ahead of this meeting and expectations
of a continued easy monetary policy was helping to weigh on the
dollar, pushing the dollar index below the 80.0 level. It
was last down 0.4 percent on the day at 79.879.
The Australian dollar hit a near 12-week high
versus the U.S. dollar at $1.0563, with investors favouring the
high-yielding currency and the sound fundamentals of the
The euro was up 0.4 percent against the yen at 99.93 yen
, taking it close to last week's peak at around
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