Shortcovering lifts euro, but gains seen limited

Italy, Spain debt auctions, ECB meeting loom

Aussie, kiwi hit new highs against euro

Stiff resistance for euro seen at $1.30

LONDON, Jan 10 The euro rose versus the dollar on Tuesday, recovering after hitting a 16month low the previous day as investors took profit on hefty short positions, but gains were seen limited before debt auctions later this week.

The euro was up 0.25 percent at $1.2798, off a high of $1.2810. Traders said demand from macro accounts, as well as bids from central banks starting around $1.2750, helped trigger stoploss orders above the Asian high of $1.2797.

The latest Commodity Futures Trading Commission data showed euro net short positions at a record and analysts said the currency would benefit from bouts of shortcovering.

Some saw scope for the euro to rise to around $1.29 but it was expected to face stiff resistance ahead of $1.30, with investors said to be looking to sell the currency on any rally.

The euro could come under renewed pressure before bond auctions on Thursday and Friday from Spain and Italy, the two countries at the centre of the euro zone crisis.

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A fresh wave of anxiety swept the markets caused by doubts over capital-raising plans and Hungary’s solvency. This led to investors selling shares in the continent’s major lenders. Italy’s biggest bank, UniCredit saw its share price fall by over 17% after it announced a heavily discounted rights issue, which valued stock at less than a third of it current price. Over in Hungary, the yield on 10 year bonds soared to over 10% after the government failed to find enough buyers for the 45bn forints (£116m) of sovereign bonds it was trying to sell. This combination of weakness in the Eurozone led to the single currency dropping to 15 month lows against Sterling.

This weakness in Europe was countered by positive data from both the UK and US. The UK’s biggest sector, services ended last year on a high while America’s efforts to improve their jobs market showed signs of progress. The US pri

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German chancellor Angela Merkel says she’s expects turbulence in 2012 as she does everything to save the Euro and end the sovereign debt crisis in Europe. Merkel would meet with French president Sarkozy on January 9^th to discuss revisions for Europe fiscal regulations. A final agreement on German French proposals is due by leaders of the Euro Zone in March.

The Euro had a second consecutive annual loss for the first time in 10 years versus the US dollar. Last Friday the euro was trading at 1.2957, a decrease of -0.02%. The US dollar decreased for a second year against the Japanese Yen, trading at an average of ¥79.71 per US $ in 2011, one of its weakest years. The US dollar was last seen trading against the Japanese Yen at 76.85, a decrease in -0.99%.

The Canadian dollar averaged $0.9892 to the US dollar in 2011, which is its strongest annual value since 1976. Th

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WTI Crude Oil (NY Close): $102.96 // +4.13 // +4.18%

Crude oil prices followed shares higher as expected yesterday on the back of a broad-based recovery in risk appetite. This time around, a pullback appears likely as S&P 500 stock index futures trade lower in early European trade, suggesting sentiment is souring anew. Investors’ anxiety comes as Eurozone debt crisis fears creep back into focus ahead of a pair bond auctions in Germany and Portugal. Later in the day, the spotlight will shift to US Factory Orders figures, which may prove to counter-balance selling pressure as expectations of the strongest increase since July.

Geopolitical jitters continue to provide the backdrop and may see crude decouple from sentiment trends amid continued jostling between the US and Iran, which traders fear may disrupt supply flows through the Strait of Hormuz that serves as the shipping route for close to 40 percent of seaborne crude. T

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