Euro springs back

The euro rebounded from last week's record lows against the dollar and yen on Monday as investors pared bearish bets on hopes that European authorities will seek greater fiscal integration within the eurozone. The euro, which was ripe for a bounce given a recent record high in net speculative short positioning, was buoyed by news that France and the European Commission signalled their support for an ambitious plan to use the euro zone's permanent bailout fund to rescue the bloc's stricken banks.
"Talk that European officials may be warming to the notion of tighter fiscal disciple caused investors to scale back some of their record anti-euro bets," said Joe Manimbo, senior market analyst at Western Union Business Solutions in Washington, D.C. In a sign of heightened global alarm about strains within the 17-member euro currency area, finance chiefs of the Group of Seven leading industrialised powers will hold emergency talks on the eurozone debt crisis on Tuesday
While European officials are trying to reassure investors they can contain an escalating crisis, many market participants remain bearish on the single currency and believe the euro's strength should prove temporary, especially if yields on Spanish and Italian bonds hover near unsustainable levels. The euro last traded 0.5 percent higher at $1.2498, up from $1.2286 on Friday - its lowest since July 2010. Monday's peak of $1.2509 was a four-day high.
Against the yen, the euro traded up 0.9 percent at 97.86 yen, well above Friday's 11-1/2-year low of 95.57 yen, according to Reuters data. "On immediate glance this small bounce in euro/dollar looks very similar to the corrective bounce witnessed in mid-May, which subsequently failed and opened the door for a move to Friday's low at $1.2286," said Gareth Sylvester, director at Klarity FX in San Francisco.
From a medium-term perspective, the broader risks suggest that the euro may head toward $1.20 and then $1.18, Sylvester said. Market participants are eyeing Wednesday's European Central Bank meeting, with some positioning for an outside chance of a rate cut. On Thursday, Federal Reserve Chairman Ben Bernanke testifies before a congressional committee about the US economy. Friday's weak US labour market data has raised expectations of more Fed quantitative easing, a negative for the dollar. Against the yen, the dollar rose 0.4 percent to 78.34 yen, off Friday's trough of 77.65, its lowest since mid-February, according to Reuters data.