Euro slips from recent highs

The euro hovered below a key level on Wednesday, running into profit taking after it hit a 11-week high against the US dollar, with attention turning towards the Australian dollar ahead of crucial inflation data.

In Asian trade, the euro slipped below the psychological, and technically crucial, level of US$1.30, having hit a high of US$1.3045 on Tuesday.

The US$1.30 level coincides with the 61.8 percent Fibonacci retracement of the euro's selloff since mid-April.

Near-term resistance for the euro is seen at the May 10 high of US$1.3095, followed by US$1.3125 which is the 38.2 percent retracement of the December-June move.

Despite the euro easing from highs, sentiment towards the single currency remains bullish in the short term with a number of commentators surprised by the resilience of the euro zone economy.

On the other hand, doubts remain over the ability of the US economy to avoid a slowdown.

Chartists say a sustained break above the US$1.30 level could place the euro in a new US$1.30-$1.35 trading range in the coming weeks.

"The euro continues to flutter about US$1.30, while levels such as US$1.3094 loom large as thresholds that would spark further unwinding of euro short positions," David Watt, RBC Capital Markets senior strategist wrote in a note.

The euro held impressive gains against the yen , trading above 114 yen after having jumped over 1 percent on Tuesday to a two-month high.

Traders said the euro looked increasingly bullish on charts against the yen, especially after it rose above 113.50 yen where it had met lots of offers from Japanese exporters.

The dollar slipped against the yen to 87.75 yen, from around 87.93 yen late in New York, with patchy US data continuing to weigh on the greenback.

US consumer confidence for July fell to its lowest level since February with all eyes on consumer durable goods numbers for June later in the session for more evidence about the world's largest economy.

The dollar index was down 0.02 percent at 82.17, with near-term support at 81.44, the 50 percent retracement of the index's move from a low of 74.17 in December 2009 to a high of 88.71 on June 7.

Meanwhile, the Australian dollar held above 90 US cents, ahead of second-quarter consumer price index (CPI) numbers. The data is due at 1.30pm NZT with underlying inflation likely to make or break the case for a rate hike next week .

Analysts expect underlying inflation to rise 0.8 percent quarter-on-quarter, and a higher reading could well see the Reserve Bank of Australia raise the cash rate by 25 basis points on August 3, supporting the Aussie dollar.

On the other hand, a lower reading would lead the market to revise down the chance of a hike and pull the Aussie lower. Currently, markets are pricing in nearly a 30 percent chances of a rate rise next week.

- Reuters