The euro held its ground against the dollar on Monday, with light selling pressure from macro players capping any gains, as markets clung to hopes EU policymakers were moving towards stemming the region's debt crisis. The euro was steady at $1.3891 after a summit on Sunday where the EU neared agreement on bank recapitalisation and the use of the European Financial Stability Facility (EFSF) to stave off bond market contagion.
"We're still waiting for the comprehensive crisis plan and divisions remain, but it looks like we're getting close to the deal on EFSF leveraging and bank recapitalisation," said a senior trader at a major Japanese bank. The euro stood well off its nine-month low plumbed earlier this month at $1.3145 and traders said it was likely to keep its positive tone at least until the next summit.
"It's very hard to aggressively short the euro right now. People got burnt doing that recently and this is why the smallest positive news item can trigger strong short-covering," said the trader. Traders also said European banks have been spotted offloading dollar assets to buy the euro amid assets getting squeezed, while the $1.3650 level of two daily lows hit earlier this month and Asian sovereign demand around that point were providing a floor for the currency.
Strong resistance for the euro loomed at its 55-day moving average at $1.3912, its one-month peak near $1.3915 and the base of the Ichimoku cloud on its daily charts at $1.3923. Support for the euro looms at the 100-week moving average at $1.3658, then $1.3621 - a 38.2 percent retracement of the euro's October rally, and eventually a spike low on September 12 of $1.3495.
Against the yen, the euro was well bid adding 0.6 percent to 105.936 yen , with Tokyo exporters seen sidelined ahead of the Wednesday EU meeting. "Risk remains relatively well supported, especially if we start thinking of things like another Fed quantitative easing, that'll help keep market focused on a weaker US dollar," said Greg Gibbs, strategist at RBS in Sydney.
On Monday it fell 0.2 percent further against a basket of major currencies to 76.274. It was also flat against the yen, recovering from an all-time low of 75.78 yen hit on Friday, and was last at 76.30 yen. Japanese Finance Minister Jun Azumi said on Monday that Japan will take decisive action on excessive and speculative forex moves. He said that the greenback below 76 yen did not reflect economic fundamentals. The Australian dollar pushed above its 200-day moving average on stop loss buying from a British name, last changing hands at $1.0406, versus New York's $1.0331.