* Euro pressured vs Aussie in extremely thin trade
* USD barely budges vs yen; vol curve steepens
* Investors await Italian debt auction later this week
TOKYO, Dec 26 (Reuters) – The euro held its ground in
very thin trade on Monday, staying above an 11-month low against
the dollar as investors awaited an Italian debt auction later in
the week.
With markets in London and New York (Frankfurt: A0DKRK – news) closed for holidays,
major currency pairs did not stray far from recent ranges as
they entered the final trading week of 2011.
Against the greenback, the euro edged up to $1.3069,
comfortably above an 11-month trough of $1.2945 hit this month.
Market participants said stop-loss orders around $1.3120
could push the euro higher in a thin market if triggered, while
a break below $1.2945 could pave the way for a test of its 2011
low of $1.2860.
“A day like today can be risky, because thin conditions can
amplify moves,” said Kimihiko Tomita, head of foreign exchange
for State Street Global Markets in Tokyo.
The euro could get a lift from short-covering as the year
wanes. Even though latest weekly IMM data showed long bets in
favour of the U.S. dollar rose to $17.6 billion, short euro
positions slipped only slightly to 113,697 contracts.
The market is also keen to see if the European Central
Bank’s tender last week improved credit conditions and eased the
funding strain for struggling euro zone countries.
Italy will sell 3- and 10-year bonds on Thursday
, and a successful auction would give the euro
some support.
Italian bond yields rose across the curve on Friday, with
the 10-year yield rising 8 basis points, breaking
above the 7 percent level to 7.01 percent.
The euro also managed to stay above a record low against the
Australian dollar, and last stood at A$1.2855, having sunk as
deep as A$1.2832 on Friday.
The Aussie was up 0.1 percent at $1.0161, and the
dollar index edged down about 0.1 percent to 79.86, off
an 11-month peak of 80.73 hit this month.
Against its Japanese counterpart, the dollar remained mired
at 77.99 yen. The pair has stuck to a narrow 2-yen band
since Japanese financial authorities intervened in currency
markets on Oct (KOSDAQ: 039200.KQ – news) . 31 to quell the yen’s surge.
Expectations of near-term range-trading were evident in the
options market, where one-month at-the-money implied volatility
on dollar/yen options was at 7.6, significantly below
comparable one-year volatility at 11.6.
The steepening volatility curve suggests investors expect
greater activity in foreign exchange markets late next year, but
that the shorter-term outlook is that rangebound moves will
continue.
(Editing by Edwina Gibbs)
