* Euro up on stop-loss, model players' buying in thin trade
* Dollar hits 3-week low vs yen, 7-week low vs Aussie
By Hideyuki Sano
TOKYO, Dec 28 (Reuters) - The euro rose sharply as bears were
forced to abandon their bets on Tuesday while the dollar came
under broad selling pressure, hitting a three-week low against
the yen and a seven-week low against the Australian dollar.
The euro jumped after stop-loss orders were triggered at key
chart points around $1.32. It rose to $1.3250 <EUR=>, its best
level in more than a week and extending its recovery from last
week's three-week low of $1.3055.
Euro bears had been frustrated by the currency's firm support
for more than a week at its 200-day moving average just below
$1.31 and were giving up their positions for now.
Many in the market have been betting on more weakness in the
euro due to persistent worries that some euro zone countries such
as Spain and Portugal may need rescue programmes to finance their
debt, tracking a path trodden by Greece and Ireland.
"It's a flow-driven market so it's hard to tell how long this
rise in the euro will continue," said a trader at a European
bank, noting that a speculative player appears to have tried to
take advantage of thin trade to push up the euro.
The euro could target $1.3278, a 50 percent retracement of
its fall earlier this month from $1.3500 to $1.3055, and then
around $1.3330-35, which includes a 61.8 percent retracement of
the same decline as well as the pair's peak in August.
"Essentially the euro is rising on short-covering. I think
we'll need to watch the market a bit more to see how investors
plan to allocate their money after Christmas and in the new
year," said Estuko Yamashita, chief economist at Sumitomo Mitsui
Banking Corp.
Market holidays in some Commonwealth countries including
Australia and the United Kingdom have made for thin volumes and
erratic trade.
EURO SENTIMENT FRAGILE
Sentiment towards the euro remains fragile and many traders
think it could retest the Nov. 30 low of $1.2969.
In one positive sign for the single currency, however, hedge
funds' exposure has shrunk from an overstretched position last
month to a more balanced level, said Todd Elmer, head of G10
strategy for ex-Japan Asia for Citi in Singapore.
But he added that this was just one of many preconditions
that the euro must meet before returning to a recovery path.
"Several weeks ago, we shifted to the view there will be
downside to the euro in the short term. I'm not convinced if the
timing is yet right to switch back to a more positive view on the
euro," Elmer said.
The dollar was weaker against most other major currencies,
falling to a seven-week low against the Australian dollar.
"U.S. bond yields fell yesterday. I think that's marginally
negative for the dollar," said a trader at a Japanese bank.
U.S. bond yields eased after a two-year note auction
attracted buyers, although a heavy snow storm in the northeastern
United States made a holiday-thinned market even thinner and
yields crept up slightly in Asia.
The dollar also dropped to a three-week low of 82.40 yen
<JPY=>, down 0.5 percent on the day, pressured by offers from
Japanese exporters, many of which will be away later this week
for the year-end and New Year holidays.
The dollar slipped below key support at its 55-day moving
average around 82.62 yen and barely clung to support around 82.40
yen, the bottom of a daily ichimoku cloud.
The bottom of the cloud is expected to gradually rise later
in the week, rendering it thinner towards early January and
pointing to a higher risk of the dollar falling below it. That
would be considered a major bearish signal.
The Aussie rose as high as $1.0090 <AUD=D4>, its highest
since mid-November and not far from a 28-year high of $1.0182 hit
in early November.
(Additional reporting by Chikako Mogi and Reuters FX analyst
Rick Lloyd in Singapore; Editing by Edmund Klamann)
