The euro dipped today after its bounce lost steam ahead of chart resistance, with investors covering short positions in the dollar following a slide in the US currency late last week.
The euro still held on to the bulk of the gains it made on Friday, when it climbed more than 1 per cent against the greenback for its biggest one-day percentage rise in about a month.
The euro was supported after Greek central bank chief George Provopoulos was quoted as saying on Friday that the country will repay its debts in full without restructuring if it sticks to a fiscal austerity plan.
"The speed of the dollar's decline on Friday was quite extraordinary, so investors are now buying the currency back," said Sumino Kamei, senior currency analyst at Bank of Tokyo-Mitsubishi UFJ in Tokyo.
"With both the UK and the US markets closed (today), we're not expecting any rapid moves, but the market will be paying close attention to any possible remarks regarding the state of European finances and may act quite quickly on such remarks."
The euro fell 0.3 per cent to $1.4270, having pulled back from resistance near $1.4326, its 55-day moving average.
The single currency, which has bounced off of a two-month low of $1.3968 hit a week ago on trading platform EBS, also faces resistance near $1.4369, the top of the cloud on the daily Ichimoku chart, a technical analysis tool popular among traders.
While worries about the risk of a debt restructuring by Greece continue to cast a cloud over the euro, a recent run of weak US economic data and a drop in US Treasury yields were weighing on the dollar, market players said.
Indeed, earlier today, the dollar hit a record low against the Swiss franc of 0.8457 franc on EBS and dipped to a 26-year trough versus the New Zealand dollar.
"I get the sense that it all hinges on yields. The dollar tends to come under pressure when the market is in risk-on mode and also when US yields are falling," said Koji Fukaya, director of global foreign exchange research at Credit Suisse Securities in Tokyo.
The two-year US Treasury yield dipped to as low as 0.48 per cent on Friday, the lowest since early December. The euro's yield advantage over the dollar based on US and German two-year government bond yields has narrowed in May.
But the current level of about 109 basis points is still not far from a peak near 133 basis points hit in early May.
Another supportive factor for the euro is a recent decline in net long positions. The latest data from the US Commodity Futures Trading Commission shows that speculators continued to reduce net long positions in the euro in the week to May 24th.
In a sign of the recent weakness of the US dollar, the New Zealand dollar hit a 26-year high of $0.8218 today, the kiwi's loftiest level since it was floated in March 1985. The New Zealand dollar later trimmed its gains and last stood at $0.8177, down 0.2 per cent on the day.
The New Zealand dollar has been lifted in the past week by talk of solid demand for New Zealand assets such as government bonds from Asian investors, notably central banks, and also strong commodity prices.
Market players say the yen is another currency that has attracted demand from Asian investors.
Participants say China is stepping up buying in Japanese government bonds, particularly notes with less than one year to maturity, in what looks like a fresh drive to diversify its ballooning foreign reserves after US government bill yields fell.
Foreign investors have flocked to Japanese government bonds in the past five weeks, finance ministry data shows and market sources say China was among the main buyers, although a large part of buying was made through banks in London.
The dollar held steady from late US trading on Friday at 80.76 yen. The dollar has retreated against the yen since hitting a three-week peak of 82.232 yen earlier in May.
Reuters
