* Euro turns higher vs dollar as shorts got squeezed
* Euro/Swiss franc rise may have spurred euro/dollar gain
* Investors still negative on euro
(Recasts, adds comment, updates prices)
By Gertrude Chavez-Dreyfuss
NEW YORK, May 20 (Reuters) - The euro rose against the
dollar on Thursday, helped by its gains versus the Swiss franc
and speculation European monetary officials may intervene to
prop up the single currency.
As the euro started to rise, investors who had bet against
the single currency were also forced to buy back euros to cut
their losses in what is known as a "short squeeze."
"The move seemed to have been led by the euro-franc and
dollar-franc crosses," said Marc Chandler, global head of
currency strategy, at Brown Brothers Harriman, in New York.
"The implied volatility....the large positions that have
been built up all point to a vulnerable market -- vulnerable to
a short squeeze. There have (also) been veiled threats of
stronger action (on the euro) but this will not change
sentiment very long."
In late afternoon trading, the euro <EUR=EBS> rose 0.7
percent to $1.2510, touching session peaks at $1.2598 on the
EBS trading platform and intra-day lows at $1.2296.
A trader said there was a large euro order in the afternoon
session of more than $400 million at $1.2440, which propelled
the single currency higher. Markets then took out stop losses
after that $1.2440 level was hit.
On the year, however, the euro was still down 12.6 percent
against the dollar.
Despite Thursday's surge in the euro, sentiment on the
currency remains decidedly negative, with investors concerned
about a seeming lack of unity among euro zone leaders in
addressing the region's debt crisis.
"Unfortunately, there is no coordinated response to this
crisis from the European Union and this has hurt the euro,"
said Ron Simpson, director of currency research at Action
Economics in Tampa, Florida.
The discord has been most apparent the last two days when
German Chancellor Angela Merkel said on Wednesday the euro is
in danger. "Every one of us here can feel that the currency
crisis in the euro is the greatest challenge that Europe has
faced (in) decades," Merkel said. [ID:nLDE64I0EN].
That was a statement that didn't sit well with French
Economy Minister Christine Lagarde, who said on Thursday she
does not agree with Merkel's view. "I absolutely do not think
the euro is in danger. The euro is a solid and credible
The euro had recovered from four-year lows on Wednesday as
traders covered short positions on speculation Europe might act
to check its rapid fall. For now, market players see
Eurogroup Chairman Jean-Claude Juncker said on Thursday he
did not see a need to take immediate action to halt the euro's
decline [ID:nTOE64I038]. This was echoed by European Union
Competition Commissioner Joaquin Almunia who said there was no
need to intervene. [ID:nLDE64J0YZ]
The euro also got a bid after Swiss National Bank Vice
Chairman Thomas Jordan repeated a pledge to shield Switzerland
from the euro zone debt crisis that could potentially lead to
deflation. "Therefore (the SNB) is countering an excessive
appreciation of the Swiss franc decisively." [ID:nLDE64J1XQ]/
The euro <EURCHF=> last traded at 1.4392 Swiss francs, up
0.7 percent on the day, after hitting highs of $1.4455. Traders
said based on the pair's price action, it seemed the SNB
intervened in the market to buy euros against the franc, but no
one could confirm it.
Worries about the euro zone spooked investors in global
stock and commodity markets as well, fueling a surge in the yen
and U.S. dollar as safe havens. Japan and the United States
have economic problems of their own. But their relatively
stable financial systems and liquid currencies make them
attractive to investors fleeing risk in Europe.
There was also a flight from currencies that benefit from
increased risk appetite such as the Australian, Canadian, and
New Zealand dollars.
The dollar fell 2.2 against the yen <JPY=> to 89.62 yen.
The low-yielding Japanese currency also surged against the euro
<EURJPY=R>, which plunged 1.6 percent to 112.03. At one point,
the euro slipped to the lowest against the yen since November,
2001 at 109.49, according to Reuters data.
(Editing by Andrew Hay)
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