FOREX-Euro edges up before EU summit, dollar pauses

* Euro up 0.2 pct at $1.3241 (EUR=: )

* EU summit not seen offering solution to debt crisis

* Dollar dips as surge in U.S. Treasury yields ebbs

By Tamawa Desai

LONDON, Dec 16 (BestGrowthStock) – The euro edged higher on Thursday
ahead of an EU summit but remained vulnerable on euro zone debt
concerns, while the dollar slipped back after a surge in U.S.
Treasury yields ebbed.

EU leaders meet in Brussels on Thursday and Friday to try to
agree on further action to tackle a year-long debt crisis that
has consumed Greece and Ireland and threatens to spread to
Portugal and Spain. [ID:nLDE6BE29I]

“The forex market (Read more about the difference between the forex market and the stock market. ) has gone into this with a high degree of
hope for some signs of consensus from political leaders …
although I doubt there will be any additional clarity on euro
bonds or enhancing the bailout fund,” said Jane Foley, senior
currency strategist at Rabobank.

“If they (politicians) give an impression of many
differentiating factions, the market would react quite badly.”

Euro zone policymakers are toying with a number of ideas to
fall back on if moves to create a permanent European Stability
Mechanism for solving debt crises fail to calm financial markets
next year. [ID:nLDE6BE1JV]

By 0900 GMT, the euro was up 0.2 percent at $1.3241 (EUR=: )
after falling more than 1 percent on Wednesday. Chartists put
support at $1.3160-65, with the next level to watch at
$1.3050-75 and then the November low of $1.2969.

Option expiries were being cited at $1.3200 and at $1.3300.

Spain will remain in focus ahead of the summit after ratings
agency Moody’s warned on Wednesday it could downgrade Spain’s
rating and as Madrid was scheduled to sell up to 3 billion euros
of 2020 and 2025 bonds on Thursday.

“It’s bad timing considering Moody’s announcement before the
auction, but there has been substantial cheapening so it will be
interesting to see what level of demand emerges,” said Lee
Hardman, currency economist at Bank of Tokyo-Mitsubishi UFJ.

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Euro zone graphic package: http://r.reuters.com/hyb65p

More on euro zone debt: [ID:nLDE6T0MG]

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Reaction was limited to data showing the euro zone flash
manufacturing purchasing mangers’ index rose to its highest
level since April at 56.8 in December from 55.3 in November,
confounding forecasts for a fall to 55.2. [ID:nSLAFNE6KK]

DOLLAR LOSES STEAM

The dollar lost upward momentum as U.S. Treasury yields
eased and the dollar index (Read more about the global trade. ) was down 0.2 percent at 80.07 (.DXY: )
(=USD: ).

It had gained earlier this week as benchmark 10-year
Treasury yields rose, hitting seven-month highs at 3.565 percent
and pushing the dollar to a three-month high against the yen at
84.51 yen (JPY=: ) on Wednesday.

On Thursday the dollar slipped back to 84.07 yen.

“The move above 84.41 yen should be a bullish sign for the
dollar/yen but it does depend on U.S. yields,” said Masafumi
Yamamoto, chief FX strategist at Barclays in Tokyo.

A convincing break of 84.50 could bring the dollar into
sight of post-intervention peaks near 86.00 yen set in
September.

Many market players are not convinced the selloff in
Treasuries since early November is coming to an end. However,
while a further rise in U.S. bond yields was seen helping the
dollar, some market players noted a breakdown in the
dollar/yen’s correlation with U.S. bond yields and with
U.S.-Japan yield spreads.

Its three-month correlation with five-year yield spreads
fell to just 0.65 from 0.96 in August/September.

“It’s too early to say with conviction, but it could be due
to an emergence of bearish factors, such as the U.S. fiscal
situation,” Rabobank’s Foley said.

The Swiss franc dipped against the euro (EURCHF=R: ) after the
Swiss National Bank left interest rates unchanged as expected
and said it would take all measures necessary should the euro
zone crisis lead to renewed deflation threats in Switzerland.
[ID:nZUX010036] [ID:nWEA7894]

The Swiss franc hit a record high of 1.2758 francs per euro
on trading platform EBS on Wednesday.
(Additional reporting by Charlotte Cooper in Tokyo; Editing by
Susan Fenton)

FOREX-Euro edges up before EU summit, dollar pauses