The euro and Australian dollar edged up against the yen but stayed near recent lows today, after a heavy round of leveraged trade unwinding, while the euro was also within range of a record low on the safe-haven Swiss franc.
While doubts about a global recovery were playing out, traders said, the rush towards safe-haven currencies may prove to be short lived once quarter-end hedging and repatriation flows have dried up, although the euro remained vulnerable longer term.
Some said real money investors had sold riskier currencies and equities, while moves were exaggerated by thin trading conditions and some of the selling may have been overdone.
The euro got a bit of a lift from light short-covering from Middle East investors and an Asian real money account, one dealer said, but chartwise needed to hold above $1.2145-55 and then $1.2110 to avoid a slide towards its four-year low at $1.1876.
Focus is on a three-month tender by the European Central Bank ahead of the expiry of a 12-month operation tomorrow when euro zone banks must repay €442 billion borrowed at low rates as part of ECB efforts to boost liquidity.
The market is waiting to see what the take-up at the three-month operation will be and what that would signify for the funding situation at European banks. Investors fear tomorrow's expiry could leave some banks facing a liquidity shortfall.
Barclays said in a note it expected €250-300 billion of the one-year funding to be rolled over into the three-month operation. This would signal modest demand for short-term financing, and would likely be positive for risky currencies after press reports had suggested some banks were struggling to gain access to short-term financing, which Barclays said meant consensus forecasts about demand had probably risen.
The euro edged up 0.2 per cent to 108.15 yen but remained well within sight of its 8.5 year low of 107.30 yen on trading platform EBS struck yesterday.
Against the Swiss franc, it clawed 0.2 per cent higher to 1.3213 francs after hitting a lifetime low of 1.3165 yesterday. It is down nearly 11 per cent on the franc this year.
The Australian dollar gained 0.4 per cent to 75.32 yen after a drop of nearly 4 per cent yesterday and was 0.2 per cent up on the dollar at $0.8508 after falling more than 2.5 per cent in the previous session.
Support for the Aussie is seen at $0.8465, a 50 per cent retracement of its rise from $0.8066 to $0.8860 in May and June.
Dollar/yen was soft at 88.54 yen, having lost nearly 1 per cent yesterday as the rush to safety pushed US two-year Treasury yields to record lows.
Support is seen at around 88.00 yen, the low struck on May 6th, with one dealer citing talk of options in the 87.95-88.15 yen region due to expire later today.
An official at a Japanese FX margin broker said there was talk of bids in dollar/yen from real money investors near 88.00 yen and short-covering interest around that level but with stop-loss sell orders then expected below that figure.
The dollar index was flat at 86.018, with resistance expected in the 86.42 to 86.48 region. The latter is the 38.2 per cent of the index's decline from a high of 88.71 to its recent low of 85.09.
The euro edged up 0.2 per cent to $1.2213, though was still not far from a two-week low near $1.2150 struck the previous day.
It has support at $1.2145-55, a pivot area stemming from intra-day lows and highs in May and June, and then at about $1.2110, the 61.8 per cent retracement of its move up from $1.1876 to near $1.2500 in June.
Resistance sits near $1.2224 but with a move through $1.2250-70 needed to negate short-term bearishness.
Reuters