* High-yielders, cross/yen recover on investor short-covering
* Fed Bernanke says Europe committed to euro's survival
* Aussie 1-mth risk reversals show growing bias for puts
By Kaori Kaneko
TOKYO, June 8 (Reuters) - The euro edged up but was still
near four-year lows against the dollar on Tuesday as a short
squeeze showed signs of waning and funds were expected to resume
selling on persistent worries about Europe's financial system.
Higher-yielders such as the Australian and New Zealand
dollars bounced 1 percent up against the yen as investors covered
some of their extreme short positions after Asian stock markets
<.MIAPJ0000PUS> gained, despite Wall Street's tumble on Monday.
The euro also rose against the yen after hitting its lowest
in more than 8 years at 108.06 yen <EURJPY=R> on Monday, and one
trader said it had technical scope to rebound towards 111 yen.
But the market remains bearish on the euro generally, with
Monday's four-year low of $1.1876 <EUR=> still a downside target,
followed by expected options triggers around $1.1850.
U.S. Federal Reserve Chairman Ben Bernanke said European
leaders were committed to ensuring the survival of the euro and
had enough money to meet obligations of heavily indebted member
countries. []
But traders remained sceptical.
"The market is seriously concerned about the possibility of
the euro disappearing as a currency system," said an options
trader for a Japanese bank
"The euro's fall has become a big trend that will continue
for a long time. What we're seeing today with the euro is only a
temporary pause in that trend after sharp downward moves since
late last week."
The euro <EUR=> rose 0.3 percent to $1.1960, with support
expected at Monday's $1.1876 low.
Portfolio managers like pension funds and sovereign accounts
have been purchasing euro put options constantly over the past
one to two months to hedge against a fall in the euro.
The euro's break below key chart support at $1.20 on Friday
suggests this hedging will continue, the options trader said,
although there has been no scramble to hedge in the past few
days. Euro puts for three to six months are in regular demand and
three-month euro puts with strikes at $1.15 or $1.12 are popular,
he said.
Typically, managers use those options to hedge against the
euro's fall while they dump euro assets, and then get rid of
those hedges as soon as they're done with the sale, he said.
Traders say the next option trigger for the euro comes at
$1.1850, with another likely target at about $1.1825, its March
2006 low. Below that, traders saw little support until its
November 2005 low around $1.1640, although its 1999 launch level
of $1.1747 was also a potential key marker.
It rose 0.6 percent to 109.55 yen <EURJPY=R> after falling
0.9 percent on Monday. Immediate support is seen at about 107.95
yen, the 76.4 percent retracement of its move up from a low in
October 2000 to a high of 170 yen in July 2008.
Finance ministers from the debt-stricken euro zone agreed to
set up a safety net arrangement on Monday. []
Germany's government agreed a package of austerity measures
and Hungary promised cuts to meet budget targets, but financial
markets continued to fret over the region's banking systems.
"The near-term market driver should be developments in
European peripherals with particular focus on Hungary," JP Morgan
said in a morning note.
"As there are many auctions in the euro area countries this
week, results from these auctions would affect government bond
yield spreads between European peripherals and Germany and their
impact on risk assets and forex."
Euro zone governments will issue about 27.5 billion euros
worth of new bonds this week, with Spain, Portugal and Italy all
due to hold auctions. [] Spain faces redemptions and
coupon payments worth more than 20 billion euros in July, raising
worries it may face a difficult month of refunding.
Meanwhile, the dollar index <.DXY> slipped 0.1 percent to
88.276 after hitting a 15-month high of 88.708 on Monday. The
focus is on 89.624, the high hit in early March 2009 when the
global financial crisis was still playing out.
The dollar climbed 0.2 percent to 91.61 yen <JPY=>, having
lost some ground on Monday as yen gains against riskier
currencies weighed on the pair.
Japan's new leader Naoto Kan appointed his cabinet on
Tuesday, and deputy finance minister, Yoshihiko Noda, was named
finance minister, in line with expectations. There was little
impact on the yen, with market players awaiting more information
on the government's policies. []
The Australian dollar <AUD=D4> jumped more than 1 percent to
$0.8204, with talk of hedge fund buying. Against the yen, it rose
1.2 percent to 74.86 yen <AUDJPY=R>.
But the outlook for the Aussie remains difficult. Aussie
one-month 25 delta risk reversals <AUD1MRR=ICAP> -- seen by many
as a barometer for short term fear -- were once again showing an
extreme bias for puts, sitting at 4.4/5.4 percent, up from around
3.50 percent on June 3.
The New Zealand dollar climbed 0.7 percent to $0.6628
<NZD=D4>, having slid more than 1.7 percent on Monday. It rose
0.8 percent to 60.70 yen <NZDJPY=R>.
(Additional reporting by Anirban Nag in Sydney, Satomi Noguchi
in Tokyo and Reuters FX analyst Krishna Kumar; Editing by Edwina
Gibbs)
