Euro recovers from sell-off but outlook clouded

Fri Aug 3, 2012 8:07am EDT
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By Nia Williams

LONDON (Reuters) - The euro rose on Friday, regaining some ground after two days of losses as some market players took a more optimistic view of the European Central Bank's stance on sovereign bond buying that cold help tackle a three-year-old euro zone debt crisis.

Many investors had piled into bets against the euro on Thursday when the ECB dealt it a major setback by not immediately reviving its bond buying program to curb high borrowing costs in Italy and Spain.

The ECB indicated any intervention would not come before September and President Mario Draghi also said intervention would come only if governments activated the euro zone's bail-out funds to join the ECB in buying bonds.

But growing expectations the ECB would ultimately intervene helped the euro, with investors who earlier bet against the single currency being squeezed out of short positions.

Analysts said further near-term gains would depend on U.S, non-farm payrolls data, due at 8:30 a.m. EDT (1230 GMT). The euro was also vulnerable to renewed selling with the euro zone debt crisis unresolved.

"There are a lot of people out there taking a reassessment of what Draghi said yesterday," said Lutz Karpowitz, currency strategist at Commerzbank. "It's rather difficult to believe they will really refrain from stepping into the market."

The euro rose 0.8 percent to $1.2285 after triggering stop loss buy orders at $1.2250, traders said.

It pared losses from a near three-cent dive on Thursday but many market players said the single currency could come under renewed pressure after the U.S. jobs data and test recent two-year lows below $1.2050 in coming days.   Continued...

Euro notes are pictured at a bank in this photo illustration taken in Seoul June 18, 2012. REUTERS/Lee Jae-Won