Euro struggles to defend support amid debt fears - Reuters

TOKYO | Mon Dec 20, 2010 7:20pm EST

TOKYO (Reuters) - The euro remained on the defensive on Tuesday, barely clinging to its 200-day moving average on simmering fears that some euro zone countries and banks could face more borrowing strains.

Moody's said on Monday it may cut the ratings on Spanish banks following its multi-notch downgrade of Ireland's credit rating last week. Speculation has risen that France and Belgium may also face cuts.

"Nothing has really changed on the dire fiscal conditions in Europe. The euro will likely test $1.30 and head for $1.25 soon, if not before the year-end," said Daisuke Karakama, market economist at Mizuho Corporate Bank.

The euro changed hands at $1.3120, hovering just above its 200-day moving average at $1.3102, a break of which could enhance bearish sentiment.

The next possible downside target is seen at $1.30, followed by the December low of $1.2970, traders said.

On the upside, it will likely face resistance around the $1.3165-80 zone, which had been major support for the currency.

The euro also stayed within striking distance of a low of 1.2636 Swiss francs hit on trading platform EBS on Monday, its weakest since the euro's launch in 1999.

The single currency stood just above a record trough against the Australian dollar.

Firm commodity prices have underpinned the Australian dollar, as the Reuters-Jefferies CRB index .CRB hit two-year highs.

The Australian currency kept most of its gains made on the U.S. dollar in the past three sessions, changing hands at $0.9933.

The next targets could include $0.9950 and $0.9980, 61.8 and 76.4 percent retracements respectively of its pullback last week from above parity.

The immediate focus is on the minutes of the Reserve Bank of Australia's policy meeting due at 0030 GMT.

The dollar was little changed against the Japanese yen at 83.78 yen.

No policy change is expected at the Bank of Japan's two-day policy meeting that ends on Tuesday.

(Reporting by Hideyuki Sano, additional contribution from Reuters Analyst Krishna Kumar in Sydney; Editing by Joseph Radford)

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