TOKYO: The euro jumped back to positive territory and broke above key resistance from its 90-day moving average after euro zone finance ministers clinched a second bailout deal for Greece on Tuesday.
The bailout will involve financing of 130 billion euros and aims to cut Greece's debt to 121 percent of GDP by 2020, EU officials said. The euro rose to as high as $1.3293, about 0.4 percent higher than late London levels on Monday and, on its third attempt in recent weeks, pierced its 90-day moving average, which was $1.3273 on Tuesday. US financial markets were on holiday on Monday.
"I guess the market has been expecting this but nevertheless it is a positive factor for the euro," said Takako Masai, manager of forex at Shinsei Bank, adding that the euro could spike higher if it breaks above its Feb. 9 peak of $1.3322.
But some market participants said any relief over the bailout deal was likely to be eclipsed by concerns of more uphill battles for Europe to fix its economic woes.
"When you look at the economic fundamentals, the dollar is in a favourable position. I think the euro is likely to fall to around $1.30," said Koji Fukaya, chief currency strategist at Credit Suisse in Tokyo.
Many market players expect the euro zone economy to slip into recession in part because of fiscal tightening efforts to cope with the debt crisis. That stands in sharp contrast to the US economy, which has regained some strength in recent months.
Some market players also say that the two main parties that back Greece's technocrat Prime Minister Lucas Papademos could lose their parliamentary majority after an election planned in April as support for them has fallen to an all-time low.
Also casting a shadow over the euro was a confidential analysis conducted by the IMF, European Central Bank and European Commission which said that Greece will need additional relief if it is to cut its debt to 120 percent of GDP by 2020.
The euro rose 0.4 percent versus the yen to hit a fresh three-month high of 105.957 yen.
The yen hovered near multi-month lows against most other major currencies as last week's surprise easing by the Bank of Japan has prompted speculators to crank yen-selling into high gear.
The dollar fetched 79.66 yen, not far from a 6 1/2-month high of 79.89 yen hit on Monday.
But the US currency now faces strong technical resistance from a cloud on weekly Ichimoku charts, which it has not managed to stay above for any sustained period since mid-2007.
The bottom of the cloud stands at 79.73 while its top is at 80.94 this week.
"The dollar seems to be capped for now after strong gains," said Teppei Ino, currency analyst at the Bank of Mitsubishi Tokyo UFJ.
The risk-sensitive Aussie slipped 0.3 percent to $1.0724 in tandem with the fall in the euro.
It extended losses briefly after the minutes from the Reserve Bank of Australia's Feb 7 meeting were initially perceived as dovish, though they showed board members merely reiterated that a benign inflation outlook meant that it could cut rates if necessary.
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