November 29th, 2011

FOREX – The euro held onto its modest gains against the dollar and the yen in Asia Tuesday, with optimism toward the eurozone debt crisis and position-squaring giving temporary support to the single currency.

Traders are focusing on a two-meeting of European finance ministers starting later in the day to see if they can flesh out plans to leverage the European Financial Stability Facility, the region’s bailout fund.

In late October, euro-zone leaders agreed to leverage the EUR440-billion EFSF to EUR1 trillion as part of a comprehensive agreement to resolve the debt crisis.

“I’m wondering if we should hold out too much hope for this sort of meeting, as the outcome mostly failed to live up to expectations in the past,” said Dai Sato, senior vice president of the foreign exchange division at Mizuho Corporate Bank.

At 0450 GMT, the euro was at $1.3342 from $1.3320 in late New York trade Monday, according to EBS via CQG. It was at Y104.19 from Y103.84.

Barclays Capital chief currency strategist Masafumi Yamamoto echoed skepticism over the meeting, saying Europe’s debt problems aren’t improving at all and aren’t something that can be solved by a gathering of leaders alone. “There is a high chance the current market optimism toward the meeting will turn to disappointment soon,” he said.

Mizuho’s Sato said, however, the euro may not lose much ground even if the result isn’t so appealing.

“As the year-end is approaching, there are players willing to respond positively to news to square short positions,” Sato said. “They don’t want to carry over their shorts over the Christmas and the year-end.”

Speculative traders held the biggest net short euro position last week since June 2010, according to a report from the Commodity Futures Trading Commission.

Sato said position-squaring by speculators could give the euro support at around $1.3100 for the rest of the week, while the upside is likely to be capped at $1.3500.

The dollar was at Y78.09 from Y78.00 in New York Monday. Traders said the dollar will likely edge higher to around Y79 in the near term due to demand for dollar-funding that goes beyond the year-end, and to ebbing selling pressure from Japanese exports who sold dollars when the Oct. 31 currency intervention pushed it as high as Y79.55.

The dollar was at CHF0.9211 from CHF0.9225. The U.K. pound was at $1.5510 from $1.5500.

The ICE U.S. Dollar Index, which tracks the dollar against a basket of currencies, was at 79.070 from 79.176.

Interbank Foreign Exchange Rates At 23:50 EST / 0450 GMT
Dollar Rates                               Close            High      Low  12/31

USD/JPY Japan            78.08-10       77.93-08  +0.16    78.28    77.96  -3.74
EUR/USD Euro            1.3346-48      1.3319-22  +0.20   1.3351   1.3288  -0.33
GBP/USD U.K.            1.5505-10      1.5506-11  -0.01   1.5511   1.5472  -0.64
USD/CHF Switzerland     0.9210-14      0.9218-28  -0.12   0.9244   0.9212  -1.48
USD/CAD Canada          1.0329-34      1.0342-48  -0.13   1.0363   1.0328  +3.86
AUD/USD Australia       0.9929-32      0.9901-05  +0.28   0.9942   0.9865  -2.97
NZD/USD New Zealand     0.7553-58      0.7548-54  +0.06   0.7567   0.7514  -3.09

Euro Rate

EUR/JPY Japan           104.22-26      103.85-95  +0.33   104.24   103.78  -4.05
Source: ICAP Plc.

-By Tatsuo Ito, Dow Jones Newswires.