Euro gains as Greece passes austerity steps

The euro edged up on Monday after Greece’s parliament approved an austerity bill that put the country a step closer to securing much-needed funds, though market players worried about more hurdles before lenders seal a bailout deal.

Violent street protests in Athens and the departure of six Greek cabinet ministers underscored the difficulty of implementing unpopular steps.

Eurozone finance ministers also expect Greece to explain how 325 million euros ($430 million) of this year’s total budget cuts — as yet unspecified — will be achieved before it agrees to the bailout in a meeting on Wednesday.

“I’m not sure if it’s time for a hurrah. It’s still uncertain whether eurozone finance ministers will agree on the bailout,» said Masafumi Yamamoto, chief forex strategist at Barclays Capital.

The euro gained about 0.3 percent to $1.3235, recouping some of the losses made on Friday and about a cent below a two-month high of $1.3322 hit last week.

Its 90-day moving average of $1.3314 is seen as a major resistance point, though a break there could open the way for a test around $1.35.

Highlighting exasperation felt by Germany, the country’s finance minister, Wolfgang Schaeuble, said in an interview with German newspaper Welt am Sonntag that Greek promises on austerity measures are no longer good enough because so many vows have been broken.

There are also concerns that hedge funds may have built up sufficiently large holdings of Greek bonds to scupper «voluntary» bond swap deals.

On the other hand, the euro is likely to draw some support from signs of stability in other eurozone countries, with the spread of Portuguese bond yields over German bonds slipping to one-month lows.

Fear of a major banking crisis in Europe has subsided as the European Central Bank is offering to provide an unlimited amount of three-year loans for the second time later this month after the first such operation in December.

This has prompted institutional investors to cut short positions since January, said Kimihiko Tomita, head of forex at State Street.

“If you think there will be no Armageddon, there is no need to take new euro short positions now. But on the other hand, it’s questionable whether investors will become so positive about the euro as to become net long,» Tomita said.

US data showed speculators have been cutting their net euro short positions for the past two weeks with their net euro short position falling to 140,593 contracts last week from a record 171,347 contracts two weeks before.

Amid improved sentiment for risk assets after Greece’s vote, the Australian dollar gained 0.5 percent to $1.0720, though it was off a two-month high of $1.0845 marked last week.

The New Zealand dollar rose 1.0 percent to $0.8346.

The yen eased briefly on speculation of more easing by the Bank of Japan and a weaker-than-expected reading in Japan’s GDP.

The dollar rose to 77.78 yen, just below a two-week high of 77.81 yen hit on Friday, though offers from Japanese investors repatriating coupon pavements on US bonds later this week were enough to push it back to around 77.63 yen.

On the weekly Ichimoku chart, the dollar closed above the kijun line last week for the first time since May last year, which could be seen as a positive sign.

“If the Bank of Japan eases its policy this week, which I think is unlikely, that could add momentum to the yen’s downtrend,» said Teppei Ino, a currency analyst at the Bank of Tokyo Mitsubishi-UFJ.

Many market players also think offers from Japanese exporters will help keep the dollar in its well-worn range of 76-78.50 yen.

The BOJ starts a two-day policy meeting on Monday and is widely expected to make its vague commitment to an inflation target clearer while steering clear of increasing its asset purchases for now. [Reuters]