Euro drops on profit-taking, Aussie hurt by Fitch

The euro came off six-week highs against the dollar on Monday as investors took profits made on its strongest weekly rally in more than three months and cautiously awaited a debt swap deal between Greece and its private creditors.
The Australian dollar soured the mood more, moving further away from three-month peaks hit in the wake of the Fed's pledge to keep interest rates low, after ratings agency Fitch put major Australian banks on a negative ratings watch.
Tension over Greece after suggestions that it should give up control of its budget policy to European institutions sparked an angry reaction from Greek Finance Minister Evangelos Venizelos, also weighed on sentiment, traders said.
The single currency fell 0.4% to $1.3168 zeroing in on immediate support formed by the bottom of the Ichimoku cloud on daily charts at $1.3165. It rallied almost 3% last week as speculators covered short positions.
"The recent gains in the euro were mostly on the lack of bad news from Europe and a broad softening in the dollar, not because it has become an attractive investment overnight," said Koji Fukaya, chief currency analyst at Credit Suisse in Tokyo.
"That's why any further gains in the currency will likely be choppy and limited to buying back. For now, all eyes are on Monday's summit and Greek talks," he said.
The Greek debt deal, which would cut the long-term value of privately held bonds by just over 70%, is thought to be largely in place, raising hopes that the country at the heart of the euro area debt crisis can avoid a messy default.
But it is unlikely to be reached in time for Monday's summit, where euro zone leaders are expected to sign off on a permanent rescue fund for the euro zone and agree on inserting a balanced budget rule into national legislation.
Reflecting negative sentiment towards the euro, data last Friday showed currency speculators boosted their net euro short positions to a fifth straight record high in the week ended Jan. 24.
"My sense is that the rally has run its course for now — it seems people are taking profits on their longs," said a trader for a Japanese bank in Tokyo.
He said only a close above resistance at the 50% retracement of the November to mid-January decline at $1.3250 would point to another leg higher.
Against the yen, the euro bought 101.05, up from Friday's low of 100.60. Japanese exporters' euro/yen sales target was pulled down to 102-102.50 from 103 and above, the trader said.
The Australian dollar, which scaled a three-month peak of $1.0688 on Thursday, was one of the biggest losers on Monday shedding 0.8% to $1.0566 with traders citing selling by leveraged players after Fitch's announcement.
A drop in riskier assets helped the dollar index bounce 0.2% to 79.07, compared with a 6-week low of 78.772 set on Friday.
On the yen, the dollar stood at 76.69 yen, steadying after two sessions of steep declines. The greenback had come under pressure last week after the Fed signalled it would not hike rates until at least late 2014 and kept the door open to additional stimulus.