The euro eased on Friday from the seven-week peak it struck the prior session following a deal on Europe's debt crisis, after an Italian bond auction showed investors are sceptical about the proposed resolution. The euro slipped after the auction yield on new 10-year Italian government debt hit a new euro lifetime high. It was the first euro zone bond supply since European leaders struck a deal on anti-crisis measures this week.
---- Euro surrenders some gains after 2pc climb on Thursday
---- High yields, low bid-to-cover at Italian debt auction
---- Euro seen holding steady ahead of G20 and Fed next week
---- Dollar/yen remains near record low
The auction highlighted investor scepticism about the euro zone deal, which included an agreement that private banks and insurers accept 50 percent losses on their Greek debt holdings; a leveraging of the euro zone bailout fund and a recapitalisation of banks.
Analysts said the euro remains vulnerable as the euro zone still needs to find the money to expand its bailout fund, the European Financial Stability Facility. Doubts linger as to whether the fund's increased size of around one trillion euros ($1.4 trillion) would be enough to staunch the crisis. "We're seeing the market reposition itself," said Michael Woolfolk, managing director at BNY Mellon Global markets in New York. "Going into the two (European) summits, speculators were long dollars. They have now exited those positions and players are fine tuning."
The euro zone single currency was last down 0.2 percent at $1.4165. It gained 2.1 percent on Thursday, around the entire weekly gain for the euro against the dollar. Traders reported thin liquidity and said many investors had stopped trading, having been caught out by the euro's rally. Small offers were said to be starting to build up above $1.4200 and stops at $1.4260, with bids reported back at $1.4120/00.
"The euro is in consolidation mode right now, having had such a huge rally," said Boris Schlossberg, director of currency research at GFT in New York. Analysts said much of this month's 5.8 percent rally in the euro against the dollar was driven by a squeeze of short positions and many speculators would be reluctant to start building bets against the euro ahead of a Federal Reserve meeting and G20 summit next week.
Any hints that the Fed is considering another round of monetary easing to boost the US economy or commitment from G20 players to support the euro zone bailout fund would be likely to push the euro higher. A European Central Bank policy meeting will also be in focus next week. The ECB is expected to keep interest rates on hold until December but there is an outside chance of a rate cut next week, according to a Reuters poll.
Technical analysts said the euro's outlook had been boosted by Thursday's close above the 200-day moving average, now seen as support around $1.4100. They are also looking for a weekly close above the 200-week moving average around $1.3990 to add to the positive picture.
The options market also indicated some optimism for the euro zone common currency, with declining volatility suggesting investors see less need to hedge against any negative events that may come out of Europe. The dollar steadied after sustaining heavy losses on Thursday, posting gains against the Swiss franc, the Canadian dollar and the New Zealand dollar and marginally against sterling.
Commodity currencies, among the biggest gainers on Thursday, were among those taking the biggest falls against the US dollar. The Australian dollar was down 0.2 percent at $1.0704, having surged on Thursday in its biggest one-day rally in 16 months. Against the yen, the dollar was down 0.3 percent at 75.73 yen but off the all-time low of 75.661 touched on electronic trading platform EBS on Thursday. That prompted Japanese Finance Minister Jun Azumi to repeat a warning that he would take firm steps against the yen's rise as needed and kept traders on alert for any sign of intervention from the Japanese authorities.