FOREX-Euro wins reprieve, dollar hits 3-week low vs yen

* Euro seen vulnerable as common solution proves elusive

* Some see single currency still on track to go below $1.30

* Dollar/yen slips to 3-week low, technicals look weak

* Aussie holds slim gains despite RBA statement

By Hideyuki Sano

TOKYO, Dec 7 (BestGrowthStock) – The euro won a slight reprieve on
Tuesday, though it was still dogged by worries over debt
problems in the euro zone, while the dollar slipped to a
three-week low against the yen after breaking below key chart
levels.

Although the euro drew some support in skittish trade from
hopes that Ireland will pass an austerity budget later in the
day, it remained vulnerable with European policymakers bickering
over how to tackle the region’s debt crisis. [ID:nLDE6B51VW]

Complicating the picture, however, was the dollar’s own
weakness after the Federal Reserve’s chief did not rule out
further bond purchases — a theme that sent the greenback to an
11-month low last month.

“There are many people out there who are still bearish on
the euro. But I think the market has been looking a bit too far
ahead recently,” said Minoru Shioiri, chief forex manager at
Mitsubishi UFJ Morgan Stanley Securities.

“I do not see a debt domino-effect hitting Spain now. That
may happen some time in the future but not now. The fact that
10-year Spanish bond yields have moved more than 50 basis points
in just a couple of days shows just how far the markets have
gone to an extreme,” he added.

<^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^

Take a Look on euro zone debt crisis: [ID:nLDE68T0MG]

Scenarios on euro zone crisis: [ID:nLDE6B50PA]

Graphics package on Europe’s struggle with debt:

http://r.reuters.com/hyb65p

PDF on yuan offshore market: http://r.reuters.com/byg28q

^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^>

The euro (EUR=: ) rose 0.3 percent to $1.3345, a full cent
above Monday’s low of $1.3246. Support at around $1.3268, a
level representing a 61.8 percent retracement of its September
to November rally, is proving solid for now.

Still, testing Friday’s 10-day high of $1.3438 and major
resistance in the $1.3446-3470 area looks difficult, given the
persistent worries over euro zone debt problems.

Societe Generale strategists said it was still on track for
a move below $1.3000, unless $1.3450 breaks.

IRISH BUDGET

The Irish budget was shaping up to be the next focal point,
with some participants still cautious about the potential for
negative surprises.

The IMF urged euro zone finance ministers to increase the
size of a 750 billion euros ($1 trillion) bailout mechanism for
debt-stricken members, but Germany, Europe’s biggest economy,
rebuffed calls for a bigger safety net or joint euro bonds.

The inability of the region to come up with a solution saw
investors give the euro a wide berth, and on Monday it hit a
record low against the Australian dollar at about A$1.3415
(EURAUD=R: ).

For the dollar, traders said the fact the Federal Reserve
could end up buying more than its initial target of $600 billion
in government bonds, as suggested by Fed chief Ben Bernanke on
Sunday, meant it was not out of the woods yet.

That view manifested itself most clearly in dollar/yen,
which fell to a three-week low of 82.34 yen (JPY=: ), after
Bernanke’s comments helped it to break out of a rough
83.50-84.50 range.

The dollar fell below its 55-day moving average at 82.53
yen. On the ichimoku chart, having broken below the top of the
cloud on Friday, it fell below the kijun line at 82.44 yen on
Tuesday.

Some traders say a fall below 82 yen is now possible, with
the bottom of the cloud at around 81.70 seen as a major support.

“The U.S. jobs data was weak. Although Bernanke’s comments
initially offset the impact of the weak jobs data, investors
could become more risk averse if we see another weak economic
figure or two,” said a trader at a Japanese bank.

The dollar index (Read more about the global trade. ), which tracks the greenback’s performance
against a basket of major currencies, fell 0.2 percent to 79.44,
having dropped in the past three sessions.

INDEX SUPPORT

Support for the index was pegged at 79.226, the 38.2 percent
retracement of last month’s rally from an 11-month low in early
November.

Prospects of greater injections of liquidity by the Fed kept
commodity prices underpinned. This helped commodity currencies
such as the Australian dollar largely hold on to recent gains.

The Aussie traded at $0.9911 (AUD=D4: ), not far off a
two-week high of $0.9938 set on Friday. It dipped slightly after
the Reserve Bank of Australia kept rates on hold at 4.75 percent
and said inflation would be little changed over the next few
quarters.

“They are fairly comfortable with where things are and where
the economy is heading, suggesting no great need to rush in with
another rate rise,” said Michael Blythe, chief economist at
Commonwealth Bank in Sydney.

“We have February pencilled in at the moment (for the next
rate hike), but that sounds a little soon and we may have to
push that back a bit. Sometime in the first half of next year.”

The Aussie also quickly recovered from initial losses from
talk about Chinese tightening.

The official Chinese Securities Journal reported on Tuesday
that China’s central bank may raise interest rates this weekend
to enshrine its shift to a “prudent” monetary policy in the face
of rising inflation. [ID:nTOE6B6003]
(Additional reporting by Ian Chua in Sydney and Reuters FX
analysts Krishna Kumar in Sydney and Rick Lloyd in Singapore;
Editing by Joseph Radford)

FOREX-Euro wins reprieve, dollar hits 3-week low vs yen