By Michael Kitchen, MarketWatch
LOS ANGELES (MarketWatch) — News of a plan to add capital to struggling Spanish banks sent the euro sharply higher during East Asia trading hours Monday, though some analysts remained cautious about the currency’s near-term outlook.
After slumping in recent weeks, the euro EURUSD -0.0436% shot upward to $1.2636 from its $1.2512 level late Friday in North American trading.
The gain followed news that Spain would ask the European Union for as much as €100 billion ($125 billion) in loans to help its banking sector, easing jitters slightly over the ongoing euro-zone crisis.
Still, several analysts pointed to further risks on the horizon, including Greece’s upcoming election that could determine whether the nation remains in the euro zone.
“In the near term, [the euro] will remain buoyed, but any gains will be restricted to technical resistance around the $1.2690 level, where we expect sellers to emerge, especially given the uncertainty surrounding the outcome of Greek elections this weekend,” Credit Agricole said in a note Monday.
Nomura research released Sunday pointed to capital flows as a source of worry, citing what it said was evidence of capital flight that could force the euro back down “in a dynamic resembling a traditional emerging-market currency crisis.”
The presence of such outflows, the Nomura analysts said, “opens the door to much more pronounced euro weakness, if it continues. Policy actions in the next three to four months will be crucial.”
As the euro rose, the dollar — often seen as a safe-haven currency in times of crisis — fell. The ICE dollar index DXY -0.68% , which tracks the U.S. unit against six other currencies, dropped to 81.870 from 82.439 late Friday.
The Japanese yen, also considered a safe haven, likewise lost ground, with the dollar USDJPY -0.05% rising to ÂĄ79.63 from ÂĄ79.49 at the end of the previous week. The euro EURJPY -0.05% rose to ÂĄ100.62, a gain of 0.2% for the day, according to FactSet data.
The British pound GBPUSD +0.28% followed the euro higher, advancing to $1.5555 from late Friday’s $1.5464.
Michael Kitchen is Asia editor for MarketWatch and is based in Los Angeles.
