Wednesday July 20, 2011 - 12:17:57 GMT
Reuters - www.reuters.com
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FOREX NEWS - Euro gains on cautious optimism before summit
Wed Jul 20, 2011 7:04am EDT
* Euro rises vs dollar, but uncertainty caps gains
* Investors hopeful of deal on Greece at euro zone summit
* Contagion risks from euro zone debt crisis seen remaining
By Jessica Mortimer
LONDON, July 20 (Reuters) - The euro rose against the dollar
on Wednesday on cautious optimism that euro zone leaders may
reach a deal to ease Greece's debt problems, but with gains
capped due to concerns that the risks of contagion would remain.
French ministers said on Wednesday that European leaders
were less divided than the media was reporting and were likely
to reach an accord at the summit that will ease Greece's debt
woes.
The euro was last up 0.6 percent at $1.4235. But
gains were seen capped well below last week's high around
$1.4283, with the single currency vulnerable to signs the debt
crisis could still spread to larger countries like Italy and
Spain.
Better appetite for risk among investors also buoyed the
euro and weighed on the dollar, with European equities
up 1.0 percent on signs of progress on a U.S. budget-reduction
deal and strong earnings from Apple .
"There are glimmers of hope that deals will be made in the
euro zone and U.S. but uncertainty will still prevail and
prevent any aggressive positioning ahead of the summit," said
Roberto Mialich, currency strategist.
Traders cited a Bloomberg report that euro zone officials
would consider allowing the region's rescue fund to be used to
recapitalise the banks and to buy government bonds in the
secondary market, which they said helped lift the euro.
The proposals tally with those in a euro zone document
preparing the ground for Thursday's summit, which was
exclusively reported by Reuters on Tuesday.
The single currency was also supported as euro zone sources
said the summit would be delayed slightly to allow time for a
deal to be reached on the involvement of the private sector.
This buoyed sentiment after German Chancellor Angela Merkel
on Tuesday dampened expectations the summit would produce any
comprehensive solution to Greece's debt crisis, saying further
steps would be needed.
Meanwhile in the United States, a group of Democratic and
Republican senators presented a new plan late on Tuesday that
could revive stalled U.S. debt talks and avert a default by the
world's biggest economy.
RISKS AHEAD
Analysts and traders remained concerned that a second Greek
bailout may only give temporary relief for the euro as wider
debt problems on the euro zone's periphery would remain.
"There is a feeling that there will be some kind of deal on
Greece at the summit, but there are no guarantees this will ease
concerns about the crisis spreading to Italy or Spain and people
are unlikely to push euro/dollar too much higher," said Niels
Christensen, currency strategist at Nordea in Copenhagen.
The euro sat well above a four-month low near $1.3838 hit
last week, with support near $1.4120, which roughly coincides
with trendline support on hourly charts, and traders saying it
was propped up by Asian sovereign demand.
However, it faces resistance near $1.4219, a 76.4 percent
retracement of its recent drop to $1.4015 from $1.4282, and more
near $1.4300, around the 55-day and 100-day moving averages.
Some technical analysts pointed to the fact that the 55-day
average will soon move below the 100-day average, a bearish
signal that could see the euro target its 200-day average around
$1.3914.
Elsewhere, commodity-linked currencies were supported by
better appetite for risk, with the New Zealand dollar
at $0.8546 against the U.S. dollar, near an earlier 30-year high
of $0.8568.
The Canadian dollar also hit a two-and-a-half month
high of C$0.9470 per U.S. dollar, helped by Chinese oil producer
CNOOC Ltd's saying it would buy Canada's Opti Canada
Inc. .
The dollar fell 0.2 percent against the yen to 78.93 yen
, having backed off an intraday high near 79.30 yen.
(Additional reporting by Masayuki Kitano in Singapore)
© Thomson Reuters 2011. All rights reserved.
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