Euro bounce running out of steam on profit taking

SYDNEY (BestGrowthStock) – The euro’s rally showed signs of fading on Tuesday, as investors took profits and sentiment toward the single currency still fragile as debt worries returned after Moody’s cut Greece’s credit rating to junk.

Traders said with the euro failing to break past near term resistance at around $1.23, the single currency’s impressive run in the past few sessions was showing signs of tiring.

In Asian trade, the euro was at $1.2211, lower than $1.2226 seen late in New York on Monday. The single currency had gained 0.9 percent on Monday when it rose to as high as $1.2298 and well above a four-year low of $1.1876 hit last week.

“Whether the bounce in the euro from $1.19 to $1.22 is more than a brief relief bounce remains open for debate but the sharp reaction to the rating downgrade overnight suggests that sentiment is still extremely fragile,” Matthew Strauss, senior currency strategist at RBC Capital wrote in a morning note.

While resistance is still around the first Fibonacci retracement level at $1.2301, the 23.6 percent of the currency’s move from an April 14 high to its June 7 low, support is seen at around $1.2165 on the hourly charts.

Traders said Moody’s downgrade was being used by investors as an excuse to pare positions in the single currency. Moody’s cut Greece’s credit rating to junk status and said the country faced substantial risks.

While the Moody’s downgrade could still play in the background, an overall revival in risk appetite may check sharp losses, traders say. The euro was slightly firmer on the yen at 111.92 yen.

The U.S. dollar also higher on the yen at 91.60 yen, inching up from 91.47 yen late on Monday. The Bank of Japan’s policy decision and Governor Masaaki Shirakawa’s press conference are the key events on the Asian calendar on Tuesday].

The BoJ is expected to announce a new lending scheme, but that is unlikely to move the yen, traders said.

In addition, the Reserve Bank of Australia (RBA) releases minutes from its June meeting. At that meeting the central bank kept interest rates unchanged at 4.5 percent, as it adopted a wait and watch stance to its previous hikes and said it was watching increased global financial market volatility.

The Australian dollar was steady at $0.8580, having lost ground after it hit a one-month high of $0.8665 in the previous session when an overall improvement in risk appetite supported demand for higher-yielding currencies.

Investment Advice

(Editing by Wayne Cole)

Euro bounce running out of steam on profit taking