The euro rallied from a four-year low against the dollar on Monday, helped by a turnaround in stocks late in the session which temporarily offset fears that eurozone austerity measures could trigger a downturn in the region. As the euro began to rise, investors who had bet against the single currency were also forced to buy back euros in order to cut their losses in what is known as a "short-squeeze."
Given the eurozone's debt problems, the euro has become a proxy for risk appetite, rising and falling in tandem with US stocks. The euro's correlation with the S&P 500 was at a robust 87 percent on Monday, the highest since February, according to Reuters data. In late New York trading, the euro changed hands 0.2 percent higher against the dollar at $1.2387. Earlier in the global session, the euro fell as low as $1.2234, according to electronic trading platform EBS, the lowest in more than four years.
Against the yen, the euro traded up 0.1 percent at 114.54 yen after falling to 112.47 in Asia trade. The dollar was last at 92.51 yen, flat from Friday's close. The euro has fallen nearly 7 percent against the dollar this month, and is about percent 13.5 for the year, making it the worst-performing major currency so far in 2010.
Technical analysts said the next key support was at $1.2135, the 50 percent retracement of the rally from the all-time lows near 82 US cents to record highs just above $1.60. Overall, sentiment on the euro remained negative, analysts said, and many think this rise in the euro is short-lived. Sterling, meanwhile, slid to its lowest since March 2009 at $1.4249 before rising back to $1.4474, still down 0.4 percent on the day. The pound was hit by data showing the past year's rise in British house prices may be cooling.
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