FOREX-Euro bounces after early slide, Greek debate drags on

TOKYO, June 13 (Reuters) – The euro edged up against the dollar on Monday, bouncing back from an early drop as some market players covered short positions following its slide on European haggling over a second Greek bailout and reduced expectations for euro zone rate hikes.

The euro sliced through stop-loss orders in very early Asia trade that drove it as low as $1.4285, with the break of chart support — including the 50 percent retracement of the euro’s May-to-June surge — painting a bleak technical picture.

European policymakers appeared no closer to finalising an agreement over whether private investors would take part in a restructuring of Greek debt and whether credit default swap contracts would be triggered by such an event, depending on the terms.

Eurogroup Chairman Jean-Claude Juncker told the Telegraph newspaper that there must be participation of private creditors in any “soft” restructuring, but that it must be voluntary.

Juncker’s comments came as German and French banks were leaning towards contributing to a Greek rescue, even as it remained unclear how they could do so without triggering a default.

Germany’s bank association backed government proposals to involve private creditors in a second bailout for Greece, though it remained unclear if the banks favoured a controversial bond swap. The Financial Times reported that French banks had agreed in principle to roll over Greek debt.

The euro’s woes have been compounded by a slide in global stocks that has spurred some safe-haven buying of the U.S. dollar, as well as reduced expectations for how high the European Central Bank would lift rates next year.

Even as ECB President Jean-Claude Trichet signaled that a second rate hike is on the way in July, the ECB left inflation forecasts for 2012 unchanged, prompting investors to see less scope for repeated central bank rate hikes.

The euro was up slightly at $1.4350 after dropping as far as $1.4285 on EBS in very early Asia trade and down from a one-month peak of $1.46966. Trading was thin, with Australian markets closed for a holiday.

Traders cited broad short-covering kicking in after market players failed to chase the euro’s early drop.

Another Financial Times article saying that a number of Wall Street’s biggest banks were preparing to lower their use of Treasuries during the August deadline for avoiding a U.S. technical default was playing a role in the euro short-covering, traders said.

The single currency has taken a hit across the board in the past week, falling back near a record low against the Swiss franc — one of the big major currency winners this year with all the worries about both the euro zone and United States.

The dollar was little changed at 80.41 yen , having clawed back up from a one-month low of 79.693 struck last week. Traders in Tokyo noted offers in dollar/yen around 80.40, while bids were seen lined up near 79.90.

The Australian dollar edged up 0.2 percent to $1.0558 , getting a boost from some short-covering by players including macro hedge funds.

Data from the U.S. Commodity Futures Trading Commission showed that both the euro and dollar were looking ripe for a reversal heading into the end of last week.

Through last Tuesday, the net dollar short position held by speculators had jumped to $22.98 billion from $15.73 billion the previous week, while the euro net long position more than doubled.