RTRS:Euro rises but held in range by Spain uncertainty
(Reuters) - The euro edged higher against the dollar on Monday but looked unlikely to break out of its recent tight range as traders awaited clarity on when Spain may request a bailout.
Uncertainty over when Madrid will ask for financial aid, and over whether Greece can agree on new austerity measures with its indebted lenders, has discouraged some investors from buying the euro in recent weeks.
At the same time, expectations that the single currency will rally once Spain seeks a rescue package have kept market players from betting heavily against it.
As a result the euro has been trapped in a tight range roughly between $1.28 and $1.31 since mid-September, with options barriers cited below $1.28.
It was last up 0.2 percent on the day at $1.2975, recovering from a low of $1.2891 on reported buying by sovereign investors and companies.
"A lack of political action is keeping the euro pinned down. The euro remains a sell on rallies because the ECB's decision to buy unlimited government bonds is only a palliative," said Adam Myers, senior currency strategist at Credit Agricole.
The European Central Bank has said it will buy bonds of countries that apply for a bailout, In Spain's case, such a move would bring down the country's borrowing costs and probably spark a broader increase in investor appetite for risk.
Euro zone officials said Spain could ask for financial aid from the euro zone next month. The request would probably be dealt with alongside a revised loan programme for Greece and a bailout for Cyprus in one big package.
The next focus for investors is a European Union summit later this week at which the focus will be on Spain and Greece.
While Greek Prime Minister Antonis Samaras has said Greece is likely to agree to a new austerity package with international lenders at the meeting, a formal request by Madrid for aid is not expected.
"The market is in a holding pattern with investors looking for an uneventful EU summit," said Valentin Marinov, head of European G10 currency strategy at Citi.
"Chances are, however, that the headwinds for euro could intensify again if a Spain bailout request doesn't come soon and a solution for Greece is delayed until the November EU summit."
Marinov said that in the absence of positive surprises from the summit the euro could dip again towards $1.28 in the near-term, but there would be strong support at the 200-day moving average around $1.2825.
CHINESE EXPORTS
Data over the weekend showed China's exports grew at roughly twice the rate expected in September, while imports also increased, possibly indicating that measures to spur growth in the world's second biggest economy are working.
That helped demand for riskier assets like stocks and commodity currencies like the Australian dollar. The Aussie edged up 0.1 percent on the day to $1.0238.
The U.S. dollar, which tends to be sold when investor sentiment picks up, slipped from a session high of 79.968 to 79.619, close to flat on the day .DXY.
The dollar rose 0.3 percent against the yen, however, to 78.57 yen.
A trader for a major Japanese bank in Singapore said the dollar drew some support from market speculation related to recent media reports that Japanese wireless service provider Softbank Corp (9984.T) was looking to buy about 70 percent of U.S. carrier Sprint Nextel Corp (S.N).
Ever since reports of the possible deal emerged last week, there has been market talk that it could generate dollar-buying, yen-selling flows in the foreign exchange market.
