Euro rises in London

The euro edged higher on Tuesday after hitting a 16-month low to the dollar the previous day as investors took some profit on short positions, but its gains were limited by strong interest in selling into the rally and by debt auction risks this week. The euro was up 0.1 percent on the day at $1.2775, off a high of $1.2810.
Traders said demand from macro accounts, as well as bids from central banks starting around $1.2750, helped trigger stop-loss orders above the Asian high of $1.2797 but sellers were clustered above. "There's massive offers on the topside in the euro on the trading platforms around $1.2810/15 and we have more to go at 1.2820/30," said a London-based trader.
The euro could come under renewed pressure before bond auctions on Thursday and Friday from Spain and Italy, two of the countries at the centre of the eurozone crisis. The euro has support just below $1.2600, a 76.4 percent retracement of its rally from June 2010 to May 2011 and its trough on August 24, 2010.
The European Central Bank may discuss the euro at its rate-setting meeting on Thursday. The bank is also expected to press governments to step up efforts to tackle the debt crisis while leaving rates on hold for now. Short-covering also helped lift the euro against the yen. It rose 0.2 percent to 98.20 yen, moving away from an 11-year trough of 97.28 yen hit during Monday's Japanese public holiday. The euro's recovery followed a more than 3 percent fall versus the dollar from a January 3 high of $1.3077 to Monday's low.
The higher-risk Australian dollar gained 0.9 percent to $1.0324 and hit an all-time high against the euro. The euro also slipped to a record low against the New Zealand dollar. Against the Swiss franc, the euro edged up 0.1 percent to 1.2130 francs, having earlier fallen to 1.2107. The franc gained after the head of the Swiss central bank quit on Monday, prompting talk the market could test the bank's resolve to cap the currency at 1.20 euros. Strong option-related demand was reported at 1.2100.