* Euro gets a respite, still on track for weekly losses
* EUR option barriers at $1.2500; stops at $1.2480
* USD/JPY supported by importers, short-covering
By Anirban Nag
LONDON, May 25 (Reuters) - The euro inched up from two-year lows against the dollar on Friday as bearish investors took a breather from a sharp sell-off this week, but worries about a possible Greek exit from the euro zone and risk of contagion would make gains fleeting.
The euro traded 0.3 percent higher on the day at $1.2575 , pulling away from $1.25155, its lowest level since July 2010 plumbed the day before. Traders cited a reported option barrier at $1.2500 that could check losses with offers around $1.2600 and stop-loss orders above $1.2620.
Despite the bounce, the common currency has lost more than 5 percent against the dollar so far this month and is on track for its fourth straight week of losses.
Those losses came as macro funds, real money and institutional investors ramped up selling of the currency, as concerns about Greece leaving the euro zone rose after an inconclusive election left the country at risk of bankruptcy and a possible exit from the currency bloc.
Greeks are voting again on June 17, with polls showing a close race between parties supporting and opposing terms of the country's international bailout, keeping markets on tenterhooks.
"The euro is a bit higher today, but I will be surprised if it takes stops above $1.2620. The medium-term prospects are not good," said Geoff Kendrick, currency analyst at Nomura.
"We think if Greece does not exit the euro zone, the euro will see a gradual decline to $1.23 in coming months. But if it does, then we see the euro falling to $1.20 by the end of the second quarter and $1.15 by the end the third."
Investors are just not rattled by the fallout of a Greek exit. They are also concerned about the health of the Spanish banking sector, chances of a deep and damaging slowdown in the euro area and the lack of any aggressive policy measures to address the escalating debt crisis.
Spanish lender Bankia, which was part nationalised this month, was set to ask the government for more than 15 billion (US$19 billion) on Friday to bail it out.
All of which has seen the euro being sold off on rallies with many analysts and traders now expecting it to drop below $1.25 and $1.20 to its 2010 trough of around $1.1875 in the coming weeks.
"If the euro didn't have enough to contend with as Greek exit speculation persists, the economic data points to a clear worsening in economic conditions," said Derek Halpenny, European Head of global markets research at Bank of Tokyo Mitsubishi.
"The ECB will soon have to act again to ease its monetary stance by probably cutting the refinancing rate and this can only reinforce euro downside pressures."
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Global manufacturing PMIs: link.reuters.com/byv24s
German IFO and GDP: link.reuters.com/bum65s
Asset performance since Greek elections:
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DARKENING PICTURE
European Central Bank data showed 35.4 billion euros of net direct portfolio investment flowed out of the euro zone in March, as investors shunned the region's assets.
Investor skittishness is well-reflected in the options market, where euro/dollar one-month at-the-money implied volatility spiked to 13.13 percent, its highest in more than four months.
With the euro on the backfoot, the dollar has been the big winner with its index against a basket of major currencies edging up to 82.411, its highest since September 2010.
Against the yen, the greenback was 0.1 percent higher at 79.65 yen, supported by Tokyo importers and short-covering ahead of the long weekend in the United States. Sell offers around 80.00 yen are poised to cap any further gains, traders say.
The euro was flat against the Swiss franc at 1.2015 francs, having jumped to 1.20769 francs on Thursday, its highest since mid-March on market talk the Swiss government is going to impose a tax on deposits and chatter that the Swiss central bank initiated a short squeeze in the pair.
Traders say the Swiss National Bank has been buying euros in the past few weeks to protect the floor at $1.20 francs, but some investors are still piling on bets through the options market that the peg will be breached in coming days if the euro zone crisis escalates. (Additional reporting Antoni Sladkowski in Tokyo; Editing by Susan Fenton)
WORLD FOREX: End Of Week Profit-Taking Boosts Euro - NASDAQ
--Euro trades positively across the board despite lack of crisis breakthrough
--Australian dollar, sterling also perk up after rough week
--Emerging market currencies steady; Indian rupee declines slow
By Eva Szalay
Of DOW JONES NEWSWIRES
LONDON -(Dow Jones)- Currency markets traded with a steady tone after a turbulent few days as traders closed bets ahead of the long weekend in the U.S., helping the euro and higher-yielding currencies that are enjoying a rebound from lows seen earlier this week.
The euro bounced off Thursday's $1.2518 22-month low and traded as high as $1.2603, while the Australian dollar was approaching the $0.9800 level, having slumped as low as $0.9689 Wednesday. Sterling was also recovering from a week of sharp losses, hitting the day's high at $1.5685.
Investor sentiment was more positive, with equities registering mild gains and bond yields in some of the euro area's more troubled member states easing slightly. The improved tone came despite two polls overnight showing the outcome of the June 17 Greek elections is still uncertain, and reports of a nearly 20% drop in Greek budget revenues in May.
"The most recent election polls for Greece still point towards a mixed picture," said Commerzbank in a client note. " We are caught between hope and trepidation."
No key data were released and so little news to direct the markets. Official comments continue to underline the stalemate in seeking a solution to the Greek crisis. Bundesbank President Jens Weidmann once again underlined German opposition to establishing joint euro-zone bonds for all of the currency bloc's members--a path favored by France.
"Believing euro bonds will resolve the current crisis is an illusion," Weidmann said in an interview with French newspaper Le Monde.
The euro fell back against the Swiss franc after a frantic half an hour of trading Thursday, when a small, standard buy order briefly sent it soaring, spooking traders into thinking that the Swiss National Bank was intervening. Having peaked at CHF1.2075 Thursday, it gravitated back to the CHF1.2010 area it has occupied for most of this week Friday.
The SNB is thought to be indirectly buying the euro around the CHF1.2010 level to stave off an attack on the official CHF1.20 floor, and some analysts say it's likely that the central bank is recycling its newly acquired euros into the Swedish krona and the Norwegian krone.
The two Nordic currencies are gaining ground against the euro "in almost perfect tandem," said Valentin Marinov, a currency strategist at Citigroup in a research note. He added the last time there was saw such a "pronounced and synchronized" appreciation in the krone and krona was just after the SNB installed the floor in September 2011.
In emerging markets, the dollar's gains against the Indian rupee decelerated for the first time since May 11. The rand broadly held its gains as the South African central bank left key rates unchanged at 5.50% Thursday, as widely expected. In Asia, a rise in the dollar against the Indonesian rupiah and the Philippine peso further rattled traders, pushing the Korean won under its psychological support level. Closer to the euro zone, the Hungarian forint, Polish zloty, Czech koruna and Romanian leu continued to hold largely steady for the day so far.
At 1040 GMT the euro was trading at $1.2586 from $1.2532 late Thursday, according to EBS via CQG. The currency traded at CHF1.2016 compared with CHF1.2014. The single currency traded at NOK7.5606 from NOK7.5566 and it was at SEK8.9912 compared with SEK9.0076.
The dollar was trading at Y79.54 from Y79.60 and it was at CHF0.9551 from CHF0.9582
The pound was trading at $1.5675 compared with $1.5671.
The ICE Dollar Index, which tracks the U.S. dollar against a basket of currencies, was at 82.083 from 82.303.
Here are the key technical levels:
Forex spot: EUR/USD USD/JPY GBP/USD USD/CHF Spot 1033 GMT 1.2539 79.67 1.5658 0.9589 3 Day Trend Bearish Range Bearish Bullish Weekly Trend Bearish Bearish Bearish Bullish 200 day ma 1.3307 79.71 1.5879 0.9125 3rd Resistance 1.2688 80.56 1.5848 0.9784 2nd Resistance 1.2620 80.14 1.5764 0.9696 1st Resistance 1.2603 79.83 1.5726 0.9606 Pivot* 1.2556 79.53 1.5678 0.9570 1st Support 1.2515 79.50 1.5640 0.9530 2nd Support 1.2500 79.21 1.5599 0.9495 3rd Support 1.2452 79.00 1.5500 0.9467 Forex spot: EUR/GBP Spot 1033 GMT 0.8028 3 Day Trend Bearish Weekly Trend Bearish 200 day ma 0.8380 3rd Resistance 0.8197 2nd Resistance 0.8101 1st Resistance 0.8061 Pivot* 0.8007 1st Support 0.7995 2nd Support 0.7985 3rd Support 0.7950
- By Eva Szalay, Dow Jones Newswires; 44 20 7842 9305; (eva.szalay@dowjones.com)
(Laura Clarke and Francis Bray contributed to this article.)
(END) Dow Jones Newswires 05-25-120724ET Copyright (c) 2012 Dow Jones & Company, Inc.
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