Euro edges up in Asia

The euro edged higher on Friday as traders covered short positions after its recent drop to a five-week low, but the single currency was expected to remain in a downtrend amid fears the eurozone debt crisis is spiralling out of control. Selling pressure on the euro has intensified this week on signs that contagion was spreading to core eurozone countries such as France, and the currency is on track for its biggest one-week drop since early September.
The spotlight fell on Spain on Thursday, which had to pay the highest rate to sell its 10-year debt since 1997, just shy of the 7 percent mark seen as unsustainable. The euro, however, showed some resilience in the wake of the Spanish bond auction, getting a boost from short-covering and holding above a five-week trough of $1.3421 hit on Thursday on trading platform EBS.
"The market is very eager to sell the euro and also eager to take some profits," said Jesper Bargmann, Asia head of G11 spot FX for RBS in Singapore. "So we are seeing interest on the dips to buy." The euro rose 0.2 percent to $1.3479, but is still down roughly 2.4 percent for the week, on track for its biggest weekly percentage decline since early September.
The euro is likely to test its early October low of $1.3145 eventually, but its descent will probably be gradual, said Bargmann at RBS. Support for the euro lies at around $1.3405, the 76.4 percent retracement of the October rally. The bottom of the weekly Ichimoku cloud also offers support near that level, coming in at $1.3408.
The premium for swapping euros into dollars rose on Thursday, with the three-month cross-currency basis swap around 6 basis points wider at -136 basis points, the most since the 2008 financial crisis. The Australian dollar, which tends to come under pressure in times of market stress, dipped to a five-week low of $0.9966 and was last down 0.3 percent at $0.9977. The dollar dipped 0.2 percent against the yen to 76.86 yen. Wariness about the possibility that Japan may intervene further in the wake of its massive yen-selling intervention on October 31, has lent support to the dollar recently.