* Euro vulnerable; short positions extended
* Technical support eyed at $1.2678 and $1.2605
* Australian dollar bounces but downside risks remain
(Adds quote)
By Neal Armstrong
LONDON, Aug 23 (Reuters) - The euro stayed under pressure on
Monday, hurt by concerns over the euro zone economy and
prospects of loose monetary policy until year-end which led
investors to extend short positions in the single currency.
The Australian dollar reversed losses after being dented by
political uncertainty from an inconclusive general election.
The latest Commodity Futures Trading Commission data showed
speculators had extended euro short positions in the week ended
Aug. 17 as focus shifted away from specific concerns about the
U.S. economy back on to the euro zone. []
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For a graphic on euro positioning, click on
http://r.reuters.com/rax56n
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"There's a rotation going on and focus has shifted to
conditions in the euro zone again. The market is trying to
capitalise on it," said Paul Mackel, director of currency
strategy at HSBC.
The August euro zone flash purchasing managers index for
manufacturing, which drove the economy's return to growth in the
third quarter of last year, saw growth slow. []
"August's fall in the euro zone PMI is a sign that the
recovery might be starting to slow, although the index points to
strong growth for now," said Jennifer McKeown, senior economist
at Global Economics.
At 1045 GMT, the euro was flat at $1.2705. This was not far
from five-week lows of $1.2664 versus the dollar <EUR=> hit on
Friday when European Central Bank Governing Council member Axel
Weber said the ECB should extend its loose monetary stance,
stoking worries about the euro zone economy. []
Technical analysts said the next support was the 55-day
moving average at $1.2678, followed by $1.2605, a 50 percent
retracement of its rise from a four-year low of $1.1876 marked
in June to its August peak of $1.3334.
Traders said the euro had been underpinned by strong demand
from an Asian account around the day's low at $1.2683.
The euro was down 0.35 percent at 108.45 yen <EURJPY=R>,
near a seven-week low of 108.25 yen hit on EBS on Friday. If it
falls past 108.25 yen, the euro would be vulnerable to a test of
around 107.30 yen, the near nine-year low struck in June.
The dollar was down 0.32 percent at 85.35 yen <JPY=>, close
to 84.72 yen hit earlier this month, its lowest since July 1995.
Markets were disappointed that the much-hyped meeting
between Japanese Prime Minister Naoto Kan and Bank of Japan
Governor Masaaki Shirakawa failed to live up to expectations.
By phone, both agreed to work closely, but offered few clues
on whether further monetary easing was possible. []
"The meeting did not have much to offer, including no
mention about being more active in the currency market," said
Tom Levinson, FX strategist at ING. "Dollar/yen is headed
towards the 85 yen level and for the euro towards support that
comes in just above 107 yen."
AUSTRALIAN DOLLAR
The Australian dollar dropped after neither major party in
Australia won an overall majority in Saturday's election.
[]
The Aussie hit a one-month low of $0.8833 in early Pacific
trade. It recouped those losses to trade back firm at $0.8957,
helped by buying from real-money accounts.
"There are still risks for the Aussie from long positioning
and its sensitivity to global economic data," Mackel said.
The currency received some help after Britain's Sunday Times
reported that beverage giant SABMiller <SAB.L> <SABJ.J> was
considering buying the beer operation of Australian brewer
Foster's Group <FGL.AX> for about $10.9 billion. []
