Euro rises on EU pledge, markets cautious

The euro edged higher on Monday after leaders of Germany and France promised a new comprehensive plan to recapitalise euro zone banks by the end of the month, though markets remain wary as they have been disappointed many times before.
The meeting between German Chancellor Angela Merkel and French President Nicolas Sarkozy offered no details, but drew a pledge to do what is necessary to shore up banks, settle the Greek crisis and help growth in Europe, giving a gentle boost to risk sentiment.
Market players, however, remained cautious given the lack of details and since EU leaders have promised several times before to resolve the debt crisis, to no avail.
"The positive response could simply reflect the fact that positioning is now more balanced following earlier risk reduction," Todd Elmer, currency strategist at Citi in Singapore, said in a research note.
"It looks unlikely that EUR gains can be sustained absent further positive developments," he added.
The euro climbed 0.5% to $1.3451 , pulling away from a nine-month low of $1.3145 hit last week on trading platform EBS. The single currency's rise gained added steam after it breached hourly resistance at $1.3423.
Concrete steps to recapitalise euro zone banks could offer some relief to the euro, which has been dogged by mounting worries about the impact of the euro zone's debt crisis on the European banking sector.
France, Belgium and Luxembourg agreed a rescue plan for Dexia, while other French banks have come under intense pressure because of their exposure to Greece and other weak European countries.
BNP Paribas and Societe Generale denied they would seek to raise a combined 11 billion euros as part of a broader European recapitalisation plan.
The single currency faces short-term resistance at around $1.3483, the 76.4% retracement of the euro's drop from Friday's peak of $1.3525 down to a low of $1.3346 hit during early Asian trade on Monday.
"On the open Sydney ran the sell stops down through Friday's lows in EUR/USD… So now that those orders are done, path of least resistance is up I guess," said a U.S.-based trader.
The pledge from Merkel and Sarkozy to come up with fresh measures to solve the euro zone's debt crisis lent support to equities and helped nudge the Australian dollar higher.
The Aussie dollar rose 0.5% to $0.9813 , pulling further away from a one-year low of $0.9388 hit last week.
One risk for the euro and risky assets in general is the fact that the next aid tranche for Greece is far from being a done deal with the IMF indicating the nation is at a crossroads and will need to implement "much stricter structural reforms" than seen so far.
Athens could run out of cash as soon as mid-November without the new 8 billion euro aid installment, increasing the risk of a default that would drag the region deeper into a debt crisis already shaking financial markets worldwide.
Trading is expected to be thin throughout Monday with Japan off while the U.S. celebrates Columbus Day.