FOREX-Options help euro, but debt concerns limit gains

* Euro stable vs dlr as option-related demand supports

* Respite seen temporary; Europe’s financial system strained

* Euro briefly hits record low vs Swiss franc; ECB awaited

(Adds quote, detail)

By Neal Armstrong

LONDON, June 9 (BestGrowthStock) – The euro steadied on Wednesday on
options demand, holding above a recent four-year low against the
dollar, but analysts expected only a brief respite as concerns
about sovereign debt left little room for optimism.

European banks’ overnight deposits with the European Central
Bank hit a record, highlighting jitters over the health of the
financial system. [ID:nLDE6580FO]

However, analysts said the market’s mood was helped a touch
as European shares (.FTEU3: ) rose and spreads between Italian and
Spanish government bond yields and German benchmarks, though
still elevated, narrowed. [GVD/EUR]

“The euro is being hemmed in, with the market looking for
new direction, but sentiment is still weak due to concerns about
euro zone sovereign debt,” said Michael Hewson at CMC Markets.

Traders cited option demand related to expiries at $1.1900
and $1.1950, while CMC’s Hewson said there was minor trendline
support around $1.1920. They also said there was also large
option-related demand at $1.1850.

But analysts said demand for the euro was not sufficient to
produce a major bounce, keeping it in a tight range.

Traders cited talk of option-related barriers around $1.20,
adding the key $1.2135 level — the 50 percent retracement of
the 2000-2008 euro rally — that recently acted as support was
now acting as resistance.

At 1133 GMT, the euro was steady against the dollar (EUR=: )
at $1.1970, above a four-year low hit on Monday of $1.1876.

“Sovereign spreads are wide and banks are depositing record
amounts with the ECB. There’s no relief bounce for the euro and
still big animosity towards the single currency,” said Kenneth
Broux, market economist at Lloyds Banking Group.

“There are no major bids for euro/dollar at these levels.
We’re just trading sideways ahead of the ECB tomorrow,” Broux
said.

The market will watch for more signals or steps aimed at
easing strains from the euro zone’s debt crisis or supporting
the economy when the ECB announces its latest decision on
interest rates on Thursday [ID:nLDE6560K2].

The euro traded down 0.1 percent versus the yen (EURJPY=R: )
at 109.43 yen, above an eight-year low on Monday of 108.06.

Options were also restricting movement in dollar/yen (JPY=: ),
which traded down 0.1 percent at 91.44 yen.

EURO RECORD LOW VS SWISS FRANC

The euro briefly hit a record low against the Swiss franc,
of 1.3735 francs (EURCHF=R: ), narrowly surpassing a record low
hit on Tuesday of 1.3746.

Swiss National Bank data on Tuesday showed a sharp rise in
the central bank’s foreign exchange reserves, prompting traders
to conclude further intervention would be difficult to sustain.

The dollar was down 0.4 percent versus a currency basket
(.DXY: ) at 88.059 as demand for the safe-haven greenback ebbed
slightly.

Chinese sources said exports grew 50 percent year on year
last month, easing fears that Europe’s debt crisis may hit the
country’s economic growth.

Market participants will monitor comments from U.S. Federal
Reserve Chairman Ben Bernanke at 1400 GMT. Bernanke is scheduled
to testify before the House Committee on the Budget at 1400 GMT.

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FOREX-Options help euro, but debt concerns limit gains