News
* Euro slips on ECB report, short-covering rally fades
* Failure to push beyond resistance at $1.3848 sparks selling
* Investors reluctant to push euro higher before Oct. 23 EU summit
By Naomi Tajitsu
LONDON, Oct 13 (Reuters) - The euro fell broadly on Thursday, pulling back from a one-month high versus the dollar after the European Central Bank warned about the impact on the currency and the region's banks of involving private sector bondholders in euro zone bailouts.
The euro hit a session low of $1.3708 after an article in the ECB's monthly report said forcing private bondholders to accept losses on euro zone sovereign debt could damage the common currency's reputation, prompting traders to take profits on the previous day's short-covering rally.
The euro hit a one-month high of $1.3834 on Wednesday as investors pared back heavily short positions on cautious optimism that a solution to the euro zone's debt crisis could be close. A Franco/German statement on Sunday said a plan to solve the crisis would be unveiled by the end of the month.
Thursday's selling suggested investors are still reluctant to buy the euro given the barriers policymakers face to finding a lasting debt solution.
"We've come a long way in a fairly short period time, so we're seeing a squeeze to the downside. All the structural negatives for the euro are still there," said Geoff Kendrick, currency strategist at Nomura.
He added that the euro's downside remained intact, adding: "I'd be a seller if we rise above $1.40. I wouldn't be surprised to see $1.33 before we get a Greek bailout."
Traders said selling by Russian names and European corporates dragged the euro down from a session high of $1.3827 touched in early European trade. Bids were reported on approach to $1.3700 with stop-losses below there and on a break of $1.3670. It was last down 0.4 percent on the day at $1.3735.
The sell-off highlighted wariness among investors about betting on more gains unless euro zone authorities unveil a convincing strategy to fight the crisis at a summit on Oct. 23.
"Unless we really break through the $1.37-1.38 area, it might be tough to build euro long positions up here," said Jeremy Stretch, currency strategist at CIBC.
He said the summit was key to whether the euro would extend its gains. Investors will need to be convinced that officials have a unified, lasting solution to help debt-ridden countries including Greece, while limiting the impact elsewhere.
"We need to see recognition that France and Germany are on the same page, and the recognition that officials are looking for a pan-European solution, rather than national ones. Also, the rescue fund has to be large enough to be able to cope with the scale of the problem," Stretch said.
Other analysts said the euro was vulnerable to more selling if investors believe officials are doing too little, too late to bolster European banks, which are expected suffer if they are forced to accept haircuts on their Greek debt holdings.
The euro fell 1 percent to 105.36 yen, retreating sharply from a one-month high near 107.03 yen hit the previous day, before settling around 105.50.
EURO RESISTANCE
The euro was still up around 2.5 percent versus the dollar this week, but technical analysts said its upside was limited after it stopped ahead of resistance around $1.3848, the 50 percent retracement of its late August to early October slide.
Above that, further resistance lies at $1.3937, which corresponds to a couple of daily highs hit in September.
Selling in the euro helped the dollar index to rise 0.3 percent to 77.212, recovering from a near one-month low of 76.796 hit the previous day.
The Australian dollar was flat at US$1.0132, below a three-week high of $1.0235 hit after data showed Australian employment rose by a surprisingly strong 20,400 in September, the biggest increase in seven months.
Despite its gains versus the euro and other currencies, the dollar fell 0.5 percent to 76.86 yen as the Japanese currency gained across the board. The dollar had hit a one-month high around 77.48 yen on Wednesday.
Traders said yen buying by Japanese exporters weighed on dollar/yen and cross/yen, together with a sell-off in European equity markets.
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