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Wed 20 Jul 2011 10:41 AM

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Euro edges up but doubts remain over EU summit

Rally may be curbed if Euro zone summit offers long-term solution to region's debt crisis

Euro edges up but doubts remain over EU summit
CURRENCY FEARS The euro inched higher against the dollar on Wednesday but further rally seems to be limited (Getty Images)

The euro inched higher against the dollar on Wednesday but further rally seems to be limited, due to doubts that a euro zone summit this week will offer a long-term solution to the euro zone's sovereign debt crisis.

A fall in Italian and Spanish 10-year government bond yields on Tuesday, a day after they jumped above 6 percent, gave the euro some respite after a recent sell-off that dragged it down to a four-month low versus the dollar last week.

But given doubts over whether a euro zone leaders meeting on Thursday can soothe concerns that Greece's sovereign debt crisis may spread to Italy and Spain, the scope for further gains in the euro may be limited.

German Chancellor Angela Merkel doused expectations for Thursday's emergency euro zone summit, saying the widespread longing for a single, final solution to make the Greek crisis disappear once and for all was unrealistic.

"There hasn't been any progress and the euro just seems to be moving this way and that within a range," said Tsutomu Soma, senior manager for Okasan Securities' foreign securities department in Tokyo.

"I don't think anyone can buy the euro wholeheartedly," he said, adding that the euro may struggle to rise above resistance in the $1.4250 to $1.4300 area in the near term.

The euro rose 0.1 percent to $1.4168 after a 0.3 percent gain on Tuesday, having pulled away from a four-month low near $1.3838 hit last week.

The euro has support near $1.4120, which roughly coincides with trendline support on hourly charts. It faces resistance near $1.4219, a 76.4 percent retracement of its recent drop to $1.4015 from $1.4282.

Higher up, there is more resistance near $1.4300, right around the 55-day and 100-day moving averages.

The euro edged up 0.2 percent versus the Swiss franc to 1.1688, adding to a surge on Monday when the euro climbed 1 percent against the Swiss franc, boosted by reports that Germany plans to hit Swiss banks holding deposits from German tax dodgers.

The Australian dollar edged up 0.2 percent to $1.0747 and 0.3 percent against the yen to 85.11 yen, with a rise in Asian shares helping support risk appetite.

The dollar rose 0.1 percent against the yen to 79.22 yen, staying above a four-month low of 78.45 yen hit last week.

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