FOREX-Euro holds gains on fears positions too short

* Euro broadly higher, short squeeze continues

* Possible intervention jitters heighten risk aversion

* Australian dollar rises sharply, trims steep losses

(Releads, updates throughout; previous TOKYO)

By Naomi Tajitsu

LONDON, May 21 (BestGrowthStock) – The euro held broad gains on
Friday, after investors wary of holding too many short positions
following its heavy sell-off scrambled to take off those trades
as fears of currency intervention rose.

In volatile trade, the Australian dollar jumped, paring
losses after its steep fall this week, on chatter that
Australia’s central bank may intervene to support the bruised
currency. The RBA said it does not comment on market movements.

A stampede out of the euro due to worries about the broad
economic impact of the euro zone debt crisis drove the euro to a
four-year low against the dollar this week and has pushed net
short positions in the single European currency to a record
high.

Analysts say that with risk aversion haunting the market,
investors are realising the dangers both of holding too many or
too few euros, particularly given speculation that authorities
may prop up the euro.

“The market has a clear view that the euro will be trending
lower, but by holding that position you are vulnerable to any
possibility of intervention,” said Daragh Maher, senior currency
analyst at Credit Agricole CIB, adding that such fears had
extended the euro’s short squeeze in past days.

“The intervention threat doesn’t have to feel realistic,
when the market is an extreme position, even just a muttering
can cause a reaction.”

The euro has fallen roughly 6 percent so far this month, and
its steep decline has cranked up speculation that European
officials may be concerned about the euro’s level.

Eurogroup Chairman Jean-Claude Juncker said on Thursday he
did not see the need to take immediate action to halt the euro’s
decline. [ID:nTOE64I038].

On Friday, the euro (EUR=: ) climbed as high as $1.2673 on
electronic trading platform in early trade, before pulling back
to $1.2500 by 0800 GMT.

AUSSIE GAINS

The single European currency has recovered since it tumbled
as low as $1.2143 earlier this week after Germany banned naked
short selling in some securities fuelled speculation of the
possibility of additional market regulations.
Market participants in Europe said liquidity was extremely
thin, aggravating movements.

Against the Swiss franc, the euro (EURCHF=: ) was little
changed on the day at 1.4375, having recovered sharply from a
slide to an all time low of 1.3995 francs earlier in the week.

The euro rose 1 percent against the yen to 112.20 yen.

The Australian dollar (AUD=D4: ) rose 1 percent against the
U.S. dollar to $0.8235, pulling back from $0.8085 hit on
Thursday, its weakest since July 2009.

It jumped as much as 5 percent versus the yen to 75.53 yen
(AUDJPY=R: ), pulling back from a slide to a 10-month low near
71.90 yen in early Asian trade.

The yen was broadly weaker, stung by the unwind in short
positions in higher-risk currencies. The dollar (JPY=: ) rose 0.3
percent to 89.90 yen.

Stock Market Money

(Editing by Nigel Stephenson)

FOREX-Euro holds gains on fears positions too short