FOREX-Euro dangles above lows, but not out of woods

* Euro steadies after bouncing off lows vs Swiss franc,dollar

* Activity subdued as market in holiday mode

By Hideyuki Sano

TOKYO, Dec 24 (BestGrowthStock) – The euro held its ground on Friday
after rebounding from a record low against the Swiss franc and a
three-week low against the dollar, but is expected to come under
renewed pressure after market players return from the Christmas
break.

Traders said Thursday’s rebound in the euro was overdue
particularly against the Swiss franc after heavy buying by hedge
funds had helped it hit a series of record lows this week to the
point where technical signals indicate an oversold market.

But little action took place in Asia with volumes drying up
heading into the Christmas holidays. U.S. markets are shut on
Friday along with many European centres.

“In this type of market condition, it’s very hard to take a
position because you’ll just get whipped out and that’s why there
are hardly any orders. People are waiting for January when
liquidity returns to work out what they want to do,” a trader at
a U.S. investment bank said.

“The euro is still a sell-on-rally trade. Anything above
$1.32 is worthwhile selling in my view and probably there won’t
be any buyers until the low $1.30s, where we could see some Asian
central bank interest.”

The single currency stood at $1.3130 (EUR=: ), off a three-week
low of $1.3055 set on Thursday.

Versus the Swiss franc, it was at 1.2570 franc (EURCHF=R: )
having bounced off an all-time low around 1.2440 set this week as
the pair’s oscillators, such as the RSI, showed the possibility
of a near-term oversold position.

UBS analysts said in a report to clients that the bank’s flow
data shows hedge funds have been adding close to record amounts
of francs in the past eight weeks, with record buying both
against the euro and the dollar last week.

“The strong trend (in the Swiss franc) suggests that further
short term franc strength may be likely. However, positioning
points to increasing risks of holding aggressive longs,” they
said.

Some traders also said there was scope for a significant
short squeeze in the euro against the dollar in the short term,
given the downside momentum appeared to be waning.

The euro has managed to clutch to its 200-day moving average,
now at $1.3091, for the past week, drawing some support from
central banks’ buying as well as from hopes that China may step
up its support for euro zone peripheral countries.

A breach of $1.3200 could trigger a move back towards the
Dec. 17 high around $1.3360.

Still, with no resolution in sight for the euro zone debt
crisis, analysts said it was only time before the market took the
euro lower.

Portugal was the latest euro zone member to have its ratings
cut, with Fitch downgrading the country’s credit rating by one
notch to A-plus with a negative outlook. France, however, secured
a thumbs up from S&P, which affirmed its AAA rating.

While the market is becoming accustomed to a rush of credit
downgrades, concerns that the euro zone may eventually need more
drastic measures, such as debt restructuring, are likely to
shackle the euro, some market players also said.

The cost of insuring Greek debt in credit derivatives hit a
record high following an unsourced report from a Greek newspaper
that Athens was seeking a possible debt restructuring deal after
2013. [GVD/EUR]

“The market got a bit of relief after euro zone countries
secured financing deals. But is it sustainable to pay interest
rates of more than 5 percent when the economy is contracting?
That question may come to surface next year,” said Kimihiko
Tomita, head of forex at State Street Global Markets.

The dollar was at 83.03 yen (JPY=: ), having hit 1-