* Euro retreats further after hitting resistance near $1.23
* Moody's downgrade of Greece used as excuse to sell
* Aussie off 1-mth highs, RBA minutes back steady rate view
By Satomi Noguchi
TOKYO, June 15 (Reuters) - The euro's rally showed signs of
fading on Tuesday, with investors taking profits and sentiment
towards the single currency staying fragile as debt worries
returned after Moody's cut Greece's credit rating to junk grade.
The Australian dollar pulled back further from a one-month
high versus the U.S. dollar as traders reduced demand for
higher-yielding currencies after minutes of an Australian central
bank meeting confirmed the market view that interest rates will
be on hold at least for the next month. []
Traders said with the euro <EUR=> failing to break near term
resistance at around $1.23, the single currency's impressive run
in the past few sessions was showing signs of fizzling.
"The euro would need more than short-covering to move
decisively up from here," said a senior trader at a Japanese
securities house, adding that the market still looked vulnerable
to euro-negative news given shaky equity markets.
The euro was at $1.2204 <EUR=>, down 0.1 percent from late
New York trade on Monday, retreating further from the previous
day's high of $1.2298 on trading platform EBS.
Traders said Moody's downgrade was being used by investors as
an excuse to pare positions in the single currency. Moody's cut
Greece's credit rating to junk status and said the country faced
substantial risks. [].
The Moody's downgrade could still have an affect in the
background, but an overall revival in risk appetite may check
sharp losses, traders said.
"We might get a bit of a negative reaction in Europe but it
was kind of already headed that way anyway with Greece, and the
more important thing to watch is the periphery countries like
Spain and Portugal," said a senior trader at a European bank in
Hong Kong.
Resistance is still around a Fibonacci retracement level at
$1.2301, which is 23.6 percent of the euro's move from an April
14 high to its June 7 low, and support is seen at around $1.2165
on hourly charts.
The euro fell as far as $1.1876 on June 7, its lowest since
March 2006.
"Whether the bounce in the euro from $1.19 to $1.22 is more
than a brief relief bounce remains open for debate but the sharp
reaction to the rating downgrade overnight suggests that
sentiment is still extremely fragile," Matthew Strauss, senior
currency strategist at RBC Capital wrote in a note.
The euro fell 0.2 percent on the yen <EURJPY=> to 111.70 yen.
The U.S. dollar edged down to 91.50 yen <JPY=> as sell orders
from Japanese exporters were seen capping its gains.
In the options market, the recent rebound in euro/yen and
Aussie/yen was reducing the attraction of yen calls and prompting
traders to dump options since euro/yen failed to break below a
barrier at 108 yen last week.
Implied volatilities on short-end dollar/yen options have
fallen, with one-month vol hitting a one-month low below 11.5
percent <JPYVOL>, extending a decline in the past week.
The Bank of Japan detailed a new loan scheme after its policy
meeting, saying it would lend up to $33 billion to commercial
banks to help redirect money to industries with growth potential,
but analysts doubt its effectiveness when loan demand is low.
[] []
The minutes of the Reserve Bank of Australia's June policy
meeting said it was able to leave interest rates unchanged in the
near term as previous rate hikes gave it time to see how Europe's
debt woes would affect the world economy and to wait for more
information on domestic inflation.
Board members also said disinflationary forces in the
domestic economy had not been as strong as expected and
highlighted the importance of coming data on consumer prices, due
in late July, reinforcing expectations for steady interest rates
at its next policy-setting meeting in early July.
The Australian dollar <AUD=D4> fell 0.2 percent to $0.8564,
extending its pullback from a one-month high of $0.8665 the
previous day when an overall improvement in risk appetite
supported demand for higher-yielding currencies.
(Additional reporting by Anirban Nag in Sydney and Hideyuki
Sano and Charlotte Cooper in Tokyo; Editing by Joseph Radford)
