RTRS:Euro steadies, vulnerable to euro zone anxiety
(Reuters) - The euro eased on Friday as a rebound sparked by expectations that Greece has abandoned plans for a referendum on its bailout package ran into stiff resistance, and looked vulnerable to further flare ups in political instability.
After a week of volatile trading many market players were reluctant to initiate big positions ahead of key U.S. jobs data later in the session. A weak number could fuel concerns of a global growth slowdown, prompting investors to sell perceived riskier currencies in favor of the highly liquid U.S. dollar.
The euro was last trading down 0.1 percent at $1.3796, down from Thursday's peak of $1.3855. Hefty resistance is seen around the 55-day moving average now at $1.3839, which has repeatedly capped the currency since Tuesday, and traders cited macro offers above that level.
The euro has bounced from a three-week low of $1.3608 on Tuesday, struck after Greek Prime Minister George Papandreou's sudden call for a referendum sparked concerns the country could reject the unpopular bailout plan and instead default on its debt.
On Thursday Papandreou bowed to cabinet rebels and agreed to make way for a national coalition government with the opposition if his Socialists back him in a knife-edge confidence vote on Friday.
This move reassured investors and drove the euro higher, raising hopes for political consensus in Greece on the EU rescue framework.
"I would take the referendum to be canceled and whatever happens in the confidence vote tonight the opposition will support legislation for the bailout package. That has soothed the market," said Adam Cole, global head of FX strategy at RBC Capital Markets.
"Today we go back to more conventional trading off the payrolls numbers. I suspect we will stay around $1.38 until then, if you look at the forecasts for payrolls nobody wants to go out on a limb."
Reuters consensus forecast is for U.S. non-farm payrolls to show 95,000 jobs added, compared to 103,000 last month.
Gains in the euro against the Swiss franc also supported the single currency. The euro rose to a one-week high of 1.2238 francs with traders citing buying by Swiss corporates and speculation the Swiss National Bank may raise its target rate in euro/Swiss above 1.20 francs.
ECB RATE CUT
Analysts said the single currency lost some support on Thursday when the European Central Bank unexpectedly lowered interest rates to 1.25 percent, citing the euro zone's worsening debt crisis.
President Mario Draghi said the euro zone could slip into a "mild recession" in the latter part of 2011.
Italian and French yield spreads over safe haven German Bunds remained in sight of their highest levels since the launch of the euro, suggesting investors were still worried over the possibility of contagion in the debt crisis.
"Although everybody seems to be focusing on Greece, I do think the real problem now is whether the euro zone can stop contagion by expanding the bailout fund," said a trader at a Japanese trading firm.
The euro zone services PMI released on Friday pointed to a shrinking economy and possible recession as the debt crisis sapped new business and soured sentiment.
Investors were also wary of initiating positions ahead of the conclusion of the Group of 20 summit in France.
The dollar hardly moved against the yen and was last trading at 78.00 yen, but traders said there were strong bids just below that level. Wariness about Japanese intervention, after Tokyo's record $100 billion intervention on Monday, also rendered support.
On the technical front, the dollar has strong support at 77.43 yen, the site of both tenkan and kijun lines on the Ichimoku chart.
Commodity currencies made little headway despite firmer investor appetite to take on risk. The Australian dollar was down 0.3 percent at US$1.0370.
