* Euro takes breather after rally, resistance near $1.2675
* Euro down 0.3 percent to $1.2581 <EUR=>
* Ichimoku chart suggests possible rise to $1.28 near term
(Adds details, quotes, updates prices)
By Lin Noueihed
LONDON, July 7 (Reuters) - The euro slipped off seven-week
highs against the dollar on Wednesday on concerns about the
global economic recovery and as investors scrutinised details of
plans to test the financial health of European banks.
A European committee of bank supervisors will outline on
Wednesday the methodology for stress tests of about 100 banks
[] but German banking sources said the test would
exclude a haircut on German sovereign bonds [].
The euro <EUR=> eased 0.3 percent to $1.2581 at 1048 GMT,
after reaching $1.2663 on trading platform EBS on Tuesday, its
highest level in about seven weeks.
It was little changed after worse-than-expected data showed
factory orders in Germany, the euro zone's largest economy, fell
for the first time this year in May. []
"There's still an awful lot of uncertainty in Europe and the
stress tests are the next big event... If growth concerns return
then Europe will be worse hit than the U.S.," said Derek
Halpenny, European head of global currency research at BTM-UFJ.
"We're not predicting a double-dip recession but uncertainty
over growth will persist in the next six months and if that
happens defensive currencies like the dollar will still do
well."
Traders said the euro may be hemmed in as options with
strike prices at $1.2500 and $1.2600 expire later in the day.
Analysts said the euro had gained support after a solid
Spanish syndicated debt sale on Tuesday eased euro zone debt
fears and weak U.S. data hit the dollar.
The euro ended U.S. trading above the resistance line at the
bottom of the daily Ichimoku cloud, a technical signal that its
downtrend may be over. The single currency slid beneath the
Ichimoku cloud, a Japanese chart closely followed across
markets, in mid-December and has mostly traded below it since.
Analysts said the single currency could rise further in the
short term as a raft of weak U.S. data prompts investors to
unwind long dollar positions and short euro positions built up
since the start of the year, but market players were still
refraining from taking long positions in the euro.
"Yesterday was a short-term correction to a long-term
downtrend. Euro/dollar could still go up but I would be
surprised if it went much higher," said Michael Hewson, currency
strategist at CMC Markets. "Markets are looking at the
credibility of stress tests today. German factory data is down.
These things undermine the euro."
YEN GAINS
The dollar fell 0.3 percent to 87.28 yen <JPY=>, not far
from a seven-month low of 86.96 yen hit on EBS last week.
Against other currencies, the greenback pared losses made on
Tuesday after a lacklustre report on the U.S. service sector
[] added to other recent data suggesting recovery
in the world's largest economy was slowing and shares gave up
Tuesday's gains as demand for riskier assets faded.
The dollar index <.DXY> edged up 0.13 percent to 84.195,
staying near a two-month low of 83.825 hit this week.
The Australian dollar, which has a strong correlation with
Asian shares, fell 0.6 percent to $0.8474 <AUD=D4>.
Traders said 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.
Kit Juckes, currency strategist at Societe Generale, said the
euro would fall when short-term euro zone interest rates came
down or the "remorseless grind lower in U.S. yields" ended.
"I don't like the euro or the dollar either," he said. "I'm
nervous of this apparently cozy consensus that we won't have a
double dip."
(Additional reporting by Tamawa Desai in London; Editing by
Nigel Stephenson)
