* ECB Executive Board member says bond buying still an
option
* Dollar rebounds from 6-week low vs yen
By Luciana Lopez
NEW YORK, April 11 (Reuters) – The euro rose against the
dollar and the yen on Wednesday as an ECB policymaker r aised the
possibility of more bond-buying, but the single currency traded
within recent ranges as investors stayed cautious about the
European debt crisis.
Investors have recently pushed up Italian and Spanish yields
on fears debt burdens in those nations could be unsustainable.
But the European Central Bank’s Benoit Coeure said on
Wednesday that the scale of market pressure on Spain is not
justified given the reforms being undertaken by its government
and that the ECB still has its bond-buying program as an option.
Coeure’s comments helped the euro touch a near one-week high
against the dollar, recovering ground lost in the previous
session. The currency also advanced against the yen after
closing at about a seven-week low in the previous session.
“We have seen over the past two months the (euro zone)
situation move into calmer waters, but that doesn’t mean the
situation is over by any means,” said Sean Incremona, an
economist at 4Cast Ltd in New York.
“We’re confined now between what’s going to happen next, if
the U.S. economy is going to start to moderate-slash-soften or
if European risks are going to flare up again.”
Bond yields underscored the market’s continued wariness:
while Spanish 10-year yields fell on Wednesday, they remained
near the key 6 percent level. In addition, Italy blamed a jump
in its one-year borrowing costs on Wednesday on fears of
contagion over Spain’s budget problems.
Coeure’s comments came one day after Spanish bond yields hit
their highest levels this year, exacerbating worries about the
global economy after last week’s disappointing U.S. jobs report
and soft Chinese imports.
“Today’s price action comes after a couple of days of
pessimism, but the ECB’s comments helped reverse some of that,”
said Win Thin, global head of emerging market currency strategy
at Brown Brothers Harriman in New York.
“However, I think this is a temporary respite for the euro,
and the Spain issue will remain a major issue, if not intensify
going forward,” Thin said. “Greece will also be back in the
headlines soon as well.”
Greece on Wednesday called a snap election for next month,
opening a campaign that may not produce a clear result and that
could threaten implementation of the international bailout plan
that saved the nation from bankruptcy.
The euro was last up 0.17 percent at $1.3102 , trading
largely within its range of the previous session. Traders said
demand from hedge funds and sovereign names propped up the
common currency after reportedly buying on dips.
On the upside, the euro should find resistance at
$1.3160-70, which is around the 38.2 percent retracement of its
March 27 to April 9 drop.
On the downside, support can be found between $1.2973, the
Feb. 16 low, though the euro has mostly been stuck between $1.30
and $1.35 since late January.
“I will use small gains (in the euro) to get better levels
to sell … If Spanish yields go back above 6 percent then it
would favor a break-out of the range to the downside,” said
Jeremy Stretch, head of currency strategy at CIBC.
The options market suggests some easing in uncertainty about
the euro’s prospects, with three-month risk reversals in the
euro/dollar still biased for euro puts, trading at -2.25 vols
on Wednesday, but improving from -3.5 vols in
mid-February.
DOLLAR REBOUNDS FROM 6-WEEK LOW VS YEN
The dollar gained 0.27 percent to 80.88 yen, up from
a global session low of 80.57 yen, according to Reuters data,
its lowest level since March 7.
Analysts said expectations that the Bank of Japan may
increase its asset purchases as soon as its policy meeting on
April 27 could keep the yen under pressure. Sources told Reuters
the Bank of Japan will consider easing monetary policy at that
meeting.
The euro gained 0.43 percent to 105.97 yen ,
recovering from an earlier seven-week trough of 105.42 yen,
according to Reuters data.
