Wednesday, 18 July 2012

Euro steadies as yen gains on renewed Europe concerns

Thu Jul 19, 2012 12:24am EDT

* Merkel comments remind investors crisis far from over

* Yen hits highest vs dollar since June 5

* Euro skids to fresh record low against Aussie

By Lisa Twaronite

TOKYO, July 19 (Reuters) - The euro steadied in Asian trade on Thursday but remained under pressure after reported comments by German Chancellor Angela Merkel rekindled fears about the euro zone debt crisis, to the benefit of the safe-haven yen.

Merkel said in an interview posted on her Christian Democratic Union party's website that "We have not yet shaped the European project in a way that we can be sure that everything will turn out well, we still have work to do," according to a media report.

Although Merkel reportedly added that she was "optimistic that we will succeed," the remarks helped push the euro overnight to a session low against the greenback, a record low against the Australian dollar and a 3-1/2-year low against sterling.

"There was no change in Europe's debt crisis, but because there was no bad news lately, there was a small euro correction, which unwound with the latest reminder of the worrying situation," said Masashi Murata, senior currency strategist at Brown Brothers Harriman in Tokyo.

"Pressure remains on the dollar as well, as the Fed chief's remarks keep alive the possibility of more U.S. easing to come," he added.

U.S. Federal Reserve Chairman Ben Bernanke's congressional testimony on Wednesday echoed what he said the previous day, emphasizing the central bank's willingness to support the economy as needed without outlining specific steps, and also highlighting job market weakness.

The euro was last at $1.2289, up about 0.1 percent and above an overnight low of $1.2216. It remained above a two-year low of $1.2162 hit last week.

Against the yen, though, the euro bought 96.54 yen after dropping as low as 96.49 yen, closing in on its overnight low of 96.46 yen and moving back toward a six-week low of 96.17 yen touched on Monday.

It also struck a fresh all-time nadir against the Aussie of A$1.1817, and was last trading at A$1.1822.

The euro was at 78.45 pence versus sterling, not far from 78.27 pence touched overnight and on Tuesday, which was its lowest since November 2008.

Carry positions will continue to drag on the euro, traders said.

Until risk sentiment recovers, portfolios with a long-term perspective will favor high-carry currencies in places where valuations look broadly fair, such as Brazil, strategists at Barclays Capital wrote in a note on Thursday. Such positions will be funded with euros, adding to pressure on the European unit.

The dollar bought 78.55 yen, falling as low as 78.46 yen -- its lowest level since June 5 -- after stop-loss orders at 78.50 yen were taken out. There was support at 78.36 yen, the 76.4 percent retracement of the move from 77.65 on June 1 to 80.63 on June 25. Resistance lay at the July 5 high of 80.09 yen.

The Aussie rose 0.2 percent against its U.S. counterpart to$1.0397, its highest level since May 1, with support seen at the former resistance at the July 5 high of $1.0330.