Euro stays under pressure in London

The euro stayed under pressure on Monday, hurt by concerns over the eurozone economy and prospects of loose monetary policy until year-end which led investors to extend short positions in the single currency. The Australian dollar reversed losses after being dented by political uncertainty from an inconclusive general election.
-- Euro vulnerable; short positions extended
-- Technical support eyed at $1.2678 and $1.2605
-- Australian dollar bounces but downside risks remain
The latest Commodity Futures Trading Commission data showed speculators had extended euro short positions in the week ended August 17 as focus shifted away from specific concerns about the US economy back on to the eurozone. The August eurozone flash purchasing managers index for manufacturing, which drove the economy's return to growth in the third quarter of last year, saw growth slow.
At 1045 GMT, the euro was flat at $1.2705. This was not far from five-week lows of $1.2664 versus the dollar hit on Friday when European Central Bank Governing Council member Axel Weber said the ECB should extend its loose monetary stance, stoking worries about the eurozone economy.
Technical analysts said the next support was the 55-day moving average at $1.2678, followed by $1.2605, a 50 percent retracement of its rise from a four-year low of $1.1876 marked in June to its August peak of $1.3334. Traders said the euro had been underpinned by strong demand from an Asian account around the day's low at $1.2683.
The euro was down 0.35 percent at 108.45 yen, near a seven-week low of 108.25 yen hit on EBS on Friday. If it falls past 108.25 yen, the euro would be vulnerable to a test of around 107.30 yen, the near nine-year low struck in June. The dollar was down 0.32 percent at 85.35 yen, close to 84.72 yen hit earlier this month, its lowest since July 1995.
Markets were disappointed that the much-hyped meeting between Japanese Prime Minister Naoto Kan and Bank of Japan Governor Masaaki Shirakawa failed to live up to expectations. By phone, both agreed to work closely, but offered few clues on whether further monetary easing was possible.
The Australian dollar dropped after neither major party in Australia won an overall majority in Saturday's election. The Aussie hit a one-month low of $0.8833 in early Pacific trade. It recouped those losses to trade back firm at $0.8957, helped by buying from real-money accounts.