* Euro briefly hits 2-week high vs dlr <EUR=> above $1.2350
* Improved risk tolerance supports single currency
* Analysts see upside potential, impetus lacking
(Updates prices)
By Neal Armstrong
LONDON, June 16 (Reuters) - The euro briefly hit a 2-week
high on Wednesday, continuing its correction from a four-year
low versus the dollar on improved tolerance for risk, but
lacking momentum to tackle nearby resistance levels.
The single currency made a quick show above Tuesday's
two-week peak at $1.2350 in early dealing, but by 1115 GMT it
had slipped back to trade with slight losses at $1.2295.
"The euro's recent rally can continue. It's been tracking the
improvement in risk and the higher-yielding currencies, but for
now there's nothing to provide much of an impetus to take it
significantly higher," said Stuart Bennett, senior FX strategist
at Credit Agricole CIB.
US stocks had rallied strongly on Tuesday <.SPX>, but
European markets couldn't replicate the move and were trading
close to flat on the day <>.
On Tuesday, investors had set aside concerns about the euro
zone to buy riskier assets, higher-yielding currencies and the
euro, after Spain raised 5.2 billion euros at a debt auction.
But traders said worries over Spain's debt and credit
outlook were keeping the euro vulnerable, as the premium
investors demand to hold 10-year Spanish government bonds over
German bunds hit a euro life high. []
Analysts said the recent recovery in the euro looked
short-term but could still have further to go.
"I see the recent rally as a correction from the four-year
low at $1.1876 which doesn't negate the downtrend," said Michael
Hewson, currency analyst at CMC Markets. "There is potential for
the correction to continue however as there are a lot of stale
short positions out there."
Technical analysts were supportive of the single currency.
"We look for the correction higher to extend to
$1.2445/1.2570 - the 2009 low and the 38.2 percent retracement
of the move down from April," analysts at Commerzbank said.
Traders reported demand in the $1.2270 area from Middle-East
accounts, with option-related bids then seen at $1.2250.
The euro was down around 0.2 percent versus the yen at
112.40 yen <EURJPY=R>.
SNB MEETING LOOMS
The dollar was slightly stronger at 91.50 yen <JPY=>, in the
middle of a four yen range it has held since mid-May.
The dollar index <.DXY> rose 0.3 percent to 86.234, hovering
above support near 85.85 which was a low it marked on May 28.
It slipped, however, to its lowest in a month against the
Swiss franc at 1.1277 francs <CHF=>. The franc also strengthened
versus the euro <EURCHF=R>, with Thursday's Swiss National Bank
policy meeting looming.
Traders said option volatility was high, indicating market
nerves around the SNB meeting, especially given the currency has
shifted in low volumes in recent weeks. Skew, which gives a
measure of the bias in the options market towards puts or calls
for a currency, was showing less of a bias for a strengthening
franc, they said.
The Australian dollar held near the month's highs against
both the dollar and the yen. It was slightly softer on the day
at $0.8643 <AUD=D4>, not far below a one-month high near $0.8670
struck on Monday.
