The euro rose on Friday, regaining some ground after two days of losses as some market players took a more optimistic view of the European Central Bank's stance on sovereign bond buying that cold help tackle a three-year-old eurozone debt crisis. Many investors had piled into bets against the euro on Thursday when the ECB dealt it a major setback by not immediately reviving its bond buying programme to curb high borrowing costs in Italy and Spain.
The ECB indicated any intervention would not come before September and President Mario Draghi also said intervention would come only if governments activated the euro zone's bail-out funds to join the ECB in buying bonds. Analysts said further near-term gains would depend on US, non-farm payrolls data, due at 1230 GMT. The euro was also vulnerable to renewed selling with the euro zone debt crisis unresolved.
"There are a lot of people out there taking a reassessment of what Draghi said yesterday," said Lutz Karpowitz, currency strategist at Commerzbank. "It's rather difficult to believe they will really refrain from stepping into the market." The euro rose 0.8 percent to $1.2285 after triggering stop loss buy orders at $1.2250, traders said. It pared losses from a near three-cent dive on Thursday but many market players said the single currency could come under renewed pressure after the US jobs data and test recent two-year lows below $1.2050 in coming days. "The euro is headed lower, there is no doubt about that. People are probably waiting for US payrolls and an OK number could see the euro fall towards $1.2040," said Geoff Kendrick, currency strategist at Nomura.
A break below the euro's two-year low of $1.2042 could see it test the 200-month moving average of around $1.2020. Traders cited option barriers at $1.2000 and a drop below that could take the euro to its 2010 low of $1.1876. Recent highs around $1.2390/2406 were expected to be strong resistance for the euro with speculators and long-term investors, such as reserve managers looking to sell the euro on any bounce. The euro held near a record low against the Australian dollar hit on Thursday, around A$1.1597.
It recovered against the yen, however, rising 1 percent on the day to 96.238 yen to move further away from a 11-1/2-year low of 94.12 yen hit last month. "There are structural flows out of the euro to other currencies," said a trader at a Japanese bank. But he added the prospect that the ECB would eventually step in to buy bonds would offer the euro support at lower levels. The dollar was flat against the yen, trading at 78.26, off Thursday's high around 78.54, though wariness about Japan intervening would keep the yen in check.