Reuters: Market News: FOREX-Euro turns higher but vulnerable to Spain worries

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FOREX-Euro turns higher but vulnerable to Spain worries Apr 11th 2012, 10:46 Wed Apr 11, 2012 6:46am EDT * Euro gains as stocks rise; pushes above chart resistance * Vulnerable to further rise in peripheral bond yields * Yen hits 6-week high vs dollar By Jessica Mortimer LONDON, April 11 (Reuters) - The euro rose against the dollar on Wednesday as gains on share markets encouraged traders to push it through resistance levels, but it stayed vulnerable to further selling as worries about indebted euro zone countries persisted. Analysts said the single currency could succumb to another bout of weakness if low-rated euro zone government bonds come under further selling pressure, with Spanish 10-year yields hovering close to 6 percent. A weak auction of German 10-year bonds weighed a little on the euro, but traders said market players were encouraged by the fact that peripheral bond yields did not rise as a result. "Spreads in peripheral Europe did not widen on the (German) auction which was taken as a positive. Everyone was short the euro from yesterday, so we have just done the stops and are squeezing people out," a London-based trader said. European stocks moved higher, encouraging investors to buy riskier assets, including the euro. The common currency was up 0.45 percent at $1.3141, having hit a high of $1.3157, with traders saying it was propped up by demand from hedge funds as well as sovereign names earlier reportedly buying on dips. Stop loss buy orders were triggered above the 100-day moving average around $1.3136 and Tuesday's high of $1.3145, they said. Rising Spanish bond yields has exacerbated concerns about the fragility of peripheral euro zone economies in a market already hurt by last week's disappointing U.S. job report and soft Chinese imports. "Euro/dollar has not managed to break below $1.30, but at the moment there is very little supportive news for the euro," said Audrey Childe-Freeman, global head of currency strategy at JP Morgan Private Bank. She said the euro was vulnerable to further falls against the dollar, yen and sterling. A move below support at the bottom of the daily Ichimoku cloud - a closely watched technical indicator - around $1.3055 and below Monday's one-month low of $1.3033 could pave the way for a firm break below $1.30 for the euro, analysts said. "I will use small gains (in the euro) to get better levels to sell ... If Spanish yields go back above 6 percent then it would favour a break-out of the range to the downside," said Jeremy Stretch, head of currency strategy at CIBC. YEN HITS 6-WEEK HIGH VS DOLLAR The dollar was up 0.25 percent at 80.85 yen, having earlier dropped to 80.568 yen on the EBS trading platform, its lowest level since Feb. 29. Traders reported strong bids around 80.50-55 which capped gains for the yen. The Japanese currency was supported by safe-haven flows due to concerns about global growth and after the Bank of Japan refrained from further monetary easing on Tuesday. But analysts said expectations that the BoJ may increase its asset purchase as soon as its policy meeting on April 27 could put the yen back under pressure in the coming weeks. Sources told Reuters the Bank of Japan will consider easing monetary policy at that meeting. The euro was up 0.7 percent at 106.25 yen, recovering from an earlier seven-week trough of 105.44 yen. The euro also gained some relief from comments by European Central Bank Executive Board member Benoit Coeure that the bank's bond-buying programme remained an option. The riskier Australian dollar recovered to trade up 0.6 percent at $1.0310, having earlier dropped to $1.0226 , its lowest since January. The Aussie also hit 82.50 yen, a level not seen since early February. Link this Share this Digg this Email Reprints

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