* Euro turns higher after Spanish, Irish, Belgian debt
auctions
* Auctions offset weak German ZEW, Moody's Greece downgrade
* Analysts see room for further eur/dlr short squeeze
By Jessica Mortimer
LONDON, June 15 (Reuters) - The euro turned higher on
Tuesday as solid demand at debt auctions eased concerns about
euro zone debt problems after Monday's downgrade of Greece to
junk status by Moody's ratings agency.
The euro erased brief losses seen in the wake of a weak
German ZEW investor sentiment survey, which renewed concerns
about the negative effects of the euro zone debt crisis on the
wider economy. []
But analysts said the euro's falls had been unconvincing,
with solid demand at auctions in Ireland, Belgium and
particularly Spain, helping to push it back up. []
[] []
"The ability of the Spanish government to raise funds on the
open market is clearly a relief to both Spanish and EU
policymakers," said Jane Foley, research director at Forex.com.
"But the higher yield being demanded highlights the
difficulty countries such as Spain still face," she added.
At 1108 GMT, the euro was up 0.4 percent at $1.2272 <EUR=>,
just off best levels of the day. It had risen to $1.2298 on
Monday as risk sentiment improved, before running into option
protection ahead of a $1.2300 barrier.
Technical analysts noted next resistance at $1.2330, in line
with the November 2008 low.
"There is enough to stop people from aggressively selling
euro/dollar," said RBS currency strategist Paul Robson.
"S&P (ratings agency) had already downgraded Greece to junk,
so the Moody's news was less significant, and the ZEW survey was
weak but other survey data has been relatively good".
He said there was scope for a squeeze in euro short
positions up to around the $1.26 level.
The euro has stayed above $1.20, well off its recent
four-year low around $1.1876, with traders saying central bank
bids around $1.2170 had cushioned earlier losses.
Analysts said euro short positions were also very stretched,
with traders taking profits on current positions without taking
on new shorts.
Commodity Futures Trading Commission data showed speculators
boosted their bets against the euro in the week ended June 8,
with net short positions just below record levels. []
SPAIN WORRIES
Euro gains may be limited, however, with worries about
Spanish banks persisting after Spanish Treasury Secretary Carlos
Ocana acknowledged on Monday that some Spanish lenders faced a
liquidity freeze in the interbank market. []
"The Greece downgrade highlighted that these problems are
quite severe and it is difficult to see the liquidity problems
in Spain improving and I think the euro will struggle going
forward," said Johan Javeus, currency strategist at SEB in
Stockholm.
Moody's slashed Greece's rating by four notches, citing
"macroeconomic and implementation risks" in the country's
draconian austerity programme and renewing doubts about Greece's
ability to repay its debt. []
This put a stop to the euro's impressive run over the past
few sessions when a rally in equity markets prompted investors
to take profits on hefty short positions, leading the single
currency to stall just shy of resistance at around $1.23.
The euro erased earlier losses against the yen <EURJPY=> to
turn 0.1 percent higher at 111.98 yen. The U.S. dollar lost 0.2
percent to 91.30 yen <JPY=>.
(Additional reporting by Neal Armstrong; editing by Chris
Pizzey)
