TOKYO |
TOKYO (Reuters) - The euro won a slight reprieve on Tuesday, though it was still dogged by worries over debt problems in the euro zone, while the dollar slipped to a three-week low against the yen after breaking below key chart levels.
Although the euro drew some support in skittish trade from hopes that Ireland will pass an austerity budget later in the day, it remained vulnerable with European policymakers bickering over how to tackle the region's debt crisis.
Complicating the picture, however, was the dollar's own weakness after the Federal Reserve's chief did not rule out further bond purchases -- a theme that sent the greenback to an 11-month low last month.
"There are many people out there who are still bearish on the euro. But I think the market has been looking a bit too far ahead recently," said Minoru Shioiri, chief forex manager at Mitsubishi UFJ Morgan Stanley Securities.
"I do not see a debt domino-effect hitting Spain now. That may happen some time in the future but not now. The fact that 10-year Spanish bond yields have moved more than 50 basis points in just a couple of days shows just how far the markets have gone to an extreme," he added.
The euro rose 0.3 percent to $1.3345, a full cent above Monday's low of $1.3246. Support at around $1.3268, a level representing a 61.8 percent retracement of its September to November rally, is proving solid for now.
Still, testing Friday's 10-day high of $1.3438 and major resistance in the $1.3446-3470 area looks difficult, given the persistent worries over euro zone debt problems.
Societe Generale strategists said it was still on track for a move below $1.3000, unless $1.3450 breaks.
IRISH BUDGET
The Irish budget was shaping up to be the next focal point, with some participants still cautious about the potential for negative surprises.
The IMF urged euro zone finance ministers to increase the size of a 750 billion euros ($1 trillion) bailout mechanism for debt-stricken members, but Germany, Europe's biggest economy, rebuffed calls for a bigger safety net or joint euro bonds.
The inability of the region to come up with a solution saw investors give the euro a wide berth, and on Monday it hit a record low against the Australian dollar at about A$1.3415.
For the dollar, traders said the fact the Federal Reserve could end up buying more than its initial target of $600 billion in government bonds, as suggested by Fed chief Ben Bernanke on Sunday, meant it was not out of the woods yet.
That view manifested itself most clearly in dollar/yen, which fell to a three-week low of 82.34 yen, after Bernanke's comments helped it to break out of a rough 83.50-84.50 range.
The dollar fell below its 55-day moving average at 82.53 yen. On the ichimoku chart, having broken below the top of the cloud on Friday, it fell below the kijun line at 82.44 yen on Tuesday
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