TOKYO, Jan 4 (Reuters) – A small-squeeze revive in the euro stalled in Asia on Wednesday ahead of debt auctions in Germany, with market players dubious about the euro zone’s plans to fend off a independent debt crisis as some countries face huge debt refinancing needs.
The euro is meeting resistance after posting its largest one-day revive in nearly two months on Tuesday as investors heavily trimmed bearish positions in the common currency after upbeat data bolstered risk appetite.
“This seems like just a temporary risk-on trade, helped by easing in dollar funding pressure after the year-end, some excellent economic facts and a lack of terrible news out of Europe (Chicago Options:^REURUSD - news) ,” said Minori Uchida, a senior analyst at Bank of Tokyo-Mitsubishi UFJ.
“The fact is that the euro has subdue many hurdles to clear. We reflect the euro will likely head to $1.25,” Uchida said, noting Italy’s huge debt refinancing burden.
Traders are also looking to the meeting of French Head Nicolas Sarkozy and German Chancellor Angela Merkel on Jan. 9 to see how much progress Europe can make on their pledge for tighter monetary integration.
The euro stood at $1.3030 in late Asian trade, down 0.1 percent from late U.S. levels. It gained as much as 0.9 percent on Tuesday to reach its peak in a week at $1.3077 in the wake of a better-than-expected U.S. manufacturing report.
The U.S. data came on the back of a survey on Sunday showing a slight expansion in China’s business activity, all of which helped ease the market’s worst fears about the global state.
A string of upbeat U.S. data in contemporary weeks is raising hopes among some market players that upcoming U.S. data this week, including Friday’s payrolls data, may possibly cement optimism on the global state and further whet investors risk appetite.
Also aiding the euro, minutes from the U.S. Centralized Reserve’s December meeting were construed by markets as dollar-negative.
The Fed said it would start publishing forecasts on the path of interest rates later this month, a go that may possibly suggest rates will be on hold for longer than previously expected.
Small-covering in the euro was overdue given the noteworthy net small positions place on the single currency recently. Data last week showed currency speculators had boosted bets against the euro to a record high in the week end Dec. 27.
Subdue, many investors remained quite lucky to keep huge euro small positions, and the euro has failed to break above its 21-day moving average around $1.3078 for now.
Against the yen, the single currency was at 99.84 yen , down 0.2 percent on the day but subdue up from a decade low of 98.71 hit in holiday-thinned trade on Monday.
SHAKY AT BEST
The outlook for the common currency remained shaky due to worries about the euro zone debt crisis. Market focus is squarely on a bond auction by Germany later on Wednesday. Portugal will also sell up to 1 billion euros of three-month T-bills.
“We reflect that the downward trend in EUR/USD will likely remain intact in the medium term unless euro area economic activity stabilizes overall and/or the U.S. state shows a marked slowdown – neither of which is our central scenario,” Yuki Sakasai, an analyst at Barclays Capital wrote in a note to clients.
“Any rebound in EUR/USD may provide a better entry level for a strategic medium-term small EUR position, in our view.”
The greenback lost ground slightly against the yen, falling to 76.67 yen, not far from a record low 75.311 marked late last year, in part due to easing of dollar funding pressure after the year-end period.
Commodity (Euronext: COMIN.NX - news) currencies slipped as players took profits from the Aussie’s latest climb to a record high against the euro.
The euro edged up to A$1.2595 on Wednesday after falling to a record trough of A$1.2564 on Tuesday. That helped blow the Aussie to $1.0347 versus the greenback, off Tuesday’s two-month high of $1.0387.