* Euro takes breather after rally, resistance near $1.2675
* Ichimoku chart suggests possible rise to $1.28 near term
* Aussie edges lower after Tuesday's 1.5 pct jump
By Masayuki Kitano
TOKYO, July 7 (Reuters) - The euro slipped on Wednesday but
was holding not far from a seven-week high, with traders saying
it could rise further in the near term due to doubts about a
recovery in the U.S. economy and positive technical signals.
The euro <EUR=> eased 0.4 percent to $1.2578, after meeting
resistance around the May 21 high of $1.2673 and on selling from
a hedge fund. It hit $1.2663 on trading platform EBS on Tuesday,
the highest in about seven weeks.
Still, one positive factor for the euro was the fact that it
finished Tuesday's U.S. trading above resistance at the bottom of
the daily Ichimoku cloud -- a signal that its entrenched
downtrend may be over.
The euro in mid-December slid beneath the cloud on the
Ichimoku chart, the Japanese chart pattern that is closely
followed across markets, and had mostly traded below it since
then. But its rise back into the cloud suggests the
single-currency may have entered a consolidation phase.
"The euro is in a retracement phase in the wake of its drop
to below $1.2 and could rise back towards the top of the cloud,"
said Tokichi Ito, deputy general manager for Trust & Custody
Services Bank's forex team.
While worries about the euro zone's debt woes linger and
market players refrain from actively taking long positions in the
euro, Ito said the euro may see a short-covering bounce towards
$1.2800, near the top of the daily Ichimoku cloud.
The euro was also supported after a strong response to a
syndicated Spanish debt sale. The robust demand eased some of the
worries about the debt problems in the euro zone, although
traders said they would remain cautious until the stress test
results of the euro zone's banks are out later this month.
"What we are seeing is some position adjustment which is
driving the euro," said Tony Morriss, senior currency strategist
at ANZ. "The common theme that is gaining ground in currency
markets is the U.S. dollar is being weighed down by soft U.S.
economic numbers."
A Financial Times column headlined "The ECB may yet turn to
quantitative easing" was also a talking point in the market,
mildly pressuring the euro.
Traders said that the world's other major central banks may
also need to ease policies further in the event of a U.S.
double-dip and that the implications for currencies were far from
clear.
The dollar index <.DXY> edged up 0.2 percent to 84.235,
staying near a two-month low of 83.825 hit this week. The dollar
index lost ground on Tuesday after a lacklustre report on
business activity in the U.S. service sector. []
The dollar held steady against the yen <JPY=> at 87.49 yen,
not far from a seven-month low of 86.96 yen hit on EBS last week.
The yen has made solid gains against the greenback in recent
sessions on the back of growing worries about an economic
slowdown in the United States and falling stock markets <.SPX>.
Those concerns got a boost from a disappointing jobs report
from the U.S. late last week. That followed a raft of weak
reports which suggested consumer spending, housing and factory
activity were moderating.
"I think what we will see for a while is dollar selling,
coupled with bouts of backing off from risk-taking when there are
any sharp falls in equities," said Akira Hoshino, chief manager
for Bank of Tokyo-Mitsubishi UFJ's foreign exchange trading
department.
The yen is one currency that may benefit in this market
environment, Hoshino said.
Market players said the yen took in stride a Kyodo news
agency poll showing that Japan's ruling Democratic Party could
win fewer than 50 seats in an upper house election on Sunday,
a result that could put Prime Minister Naoto Kan's job on the
line and stall efforts to curb huge public debt. []
"It is hard for the market to show a definite reaction," said
Osamu Takashima, chief fx strategist Japan for Citibank Japan.
While a political crisis for the ruling party could be
regarded as a negative for a country's currency, any such impact
in this case could be offset by the fact that market players
regard Kan as someone who favours a weaker yen, he said.
The Australian dollar, which has had a strong correlation
with Asian shares and the market's risk appetite in general,
dipped 0.5 percent to $0.8480 <AUD=D4>, giving back some of its
1.5 percent climb the previous day, as Asian share prices fell.
The Australian dollar rose and appetite for risk got a boost
in the previous session after the Reserve Bank of Australia gave
an upbeat assessment of the economic outlook for Asia and the
domestic economy.
(Additional reporting by Anirban Nag in Sydney and Hideyuki Sano
in Tokyo; Editing by Joseph Radford)
