FOREX-Euro stuck in range before Italian debt sale, Greek vote - Reuters

Tue Jun 12, 2012 8:51pm EDT

* Spanish bonds hit record highs
* Near-term implied volatility in EUR/USD jumps ahead of Greek vote
* Austria's finance minister says Italy may need a bailout
By Antoni Slodkowski
TOKYO, June 13 (Reuters) - The euro stayed tethered to a familiar range on Wednesday, with many investors sticking to the sidelines ahead of an Italian bond sale the next day and a weekend vote in Greece which could determine the future of the euro zone.
Spanish bond yields hit a euro-era peak after the decision to lend the country's ailing lenders 100 billion euro fuelled fears that Madrid will struggle to access debt markets as its own debts rise.
Further undermining confidence in the euro, Austria's finance minister said Italy may need a financial rescue because of its high borrowing costs and added the euro zone's stretched funds may be insufficient to help its third-largest economy.
Against this backdrop, the euro held steady at $1.2504 , bang in the middle of its 2-year low hit on June 1 at 1.2288 and a three-week high reached on Monday at 1.2672.
"The euro is going to drift around $1.25 before the weekend," said Sumino Kamei, senior currency analyst at the Bank of Tokyo-Mitsubishi UFJ.
"It's also possible that even on Monday we may still know very little about who'll be in government in Greece. That's why we have to brace ourselves for more uncertainty ahead."
Against the yen the euro rose 0.2 percent to 99.55 yen . Traders said Japanese exporters were likely to cap any gains in the currency around 100 yen.
Concerns over the outcome of Greek elections, where parties opposing and supporting harsh austerity measures imposed by the country's international lenders are neck and neck in public opinion polls, caused many investors to remain on the sidelines.
As a worst-case scenario if Athens leave the euro, European officials have discussed limiting the size of withdrawals from ATM machines, imposing border checks and introducing euro zone capital controls.
The options market reflected the nervousness in the market with 1-week euro/dollar implied volatility trading at the highest level since November at 15.9 percent as quoted by ICAP , up from 10.5 percent last Friday.
Traders also cited worries about the mechanics of the Spanish rescue and fears that private bondholders could be pushed down the repayment chain below official lenders, risking losses in any debt write-down, similar to Greece.
Rome faces a test on Thursday, when it plans to offer up to 4.5 billion euros of fixed-rate bonds at its mid-month auction.
The dollar was flat against the yen at 79.53 yen, hovering below this week's high at 79.92 yen. Crucial support was seen at 77.65 yen hit on June 1.
Traders reported offers above 80 yen and further up. Chart analysts were eyeing the 100-day moving average at 80.23 as the next resistance.
The Australian dollar was also barely changed at $0.9944 , holding not far below its Monday high of $1.0010. It has a minor support around $0.9820, with resistance sitting at the peak reached above parity on Monday.
Australia's top central banker said the country's terms of trade were likely to remain high for a long time, thanks to strong ongoing demand for resources from Asia.

• Link this
• Share this
• Digg this
• Email
• Reprints

http://pixel.quantserve.com/pixel/p-89EKCgBk8MZdE.gif