Euro hits six-week high vs dollar, outlook cautious

The euro hit a six-week high against the dollar on Monday, with some investors trimming bets against the single currency on signs Germany may be open to a Greek debt write-down.

German Chancellor Angela Merkel said on Sunday Greece’s creditors may look at writing down more of its debt, a move that would make the country’s debt burden more easily sustainable.

The euro climbed to $1.3048, its highest since Oct. 23, before paring gains to last trade up 0.4 percent on the day at $1.3039.

Traders said stop loss orders were triggered on the break of $1.3030, and market players who had previously bet against the euro were squaring their short positions as it moved higher.

There was talk of an options barrier at $1.3050 with some traders expecting sellers around that level.

“Merkel is sounding a bit more flexible and we are getting positioning moves and a bit of flow moves,” said Daragh Maher, FX strategist at HSBC. “But I still think we are in a market where the reflex is to not really like the euro. A number of people have been trying to sell this rally and perhaps getting caught the wrong way, and that’s why we are able to push higher.”

The euro was helped by Spanish and Italian bond yields falling as investors became more confident about buying eurozone debt, and Greek bonds rallied after the announcement of details of a debt buyback. [Reuters]

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