Euro fights resistance but outlook still grim

---

TOKYO, Nov 9 (Reuters): The euro fought stiff chart resistance Wednesday following a rally after Italy's premier said he would resign, but its outlook remained gloomy amid the political turmoil engulfing both Greece and Italy, with those countries' borrowing costs showing no signs of easing. Greece is scrambling to win emergency funds to avert bankruptcy as soon as next month with officials arguing over a new coalition government, while yields on Italian 10-year bonds hover above 6.7 per cent, creeping up to levels seen as unsustainable. Traders said the euro will stay under pressure as it is unclear whether Italy's new government will be able to boost growth and implement spending cuts to bring down debt levels. "The news helped stabilise the euro and prompted investors to buy back shares, but there is still uncertainty on the euro as reshuffling its leader alone doesn't guarantee Italy's fiscal situation will improve," said Yuuki Sakurai, CEO of Fukoku Asset Management. At 120 per cent of gross domestic product (GDP), Rome's massive debt is the second-highest in Europe. Analysts added that with so many problems in the euro zone, it is only a matter of time as to when the next fire breaks out in a different part of the region and the euro goes down again. The common currency was barely changed at $1.3837, having risen as high as $1.3860 in early trade. It still kept well off a nine-month low of $1.3145 hit in early October. The lack of conviction in the euro has been underscored by its week-long struggle to decisively break above double resistance around $1.3850, formed by a 38.2 per cent retracement of its slide from $1.4248 to $1.3608 and the top of the Ichimoku cloud on the daily charts. Stop losses looming around $1.3800 could lure short-term accounts and pull the euro lower, traders said. But players betting that the euro will fall over a longer period remained wary of shorting the currency too heavily, having been stung by its uncanny ability to bounce back even as Europe lurches from one crisis to another. Against the yen, the euro traded mildly softer at 107.24, a long way from a decade low of 100.77 yen, plumbed roughly a month ago. Meanwhile, the dollar lost ground against the yen and broke well below 78.00 for the first time since yen-weakening intervention by Japan last week saw it rise as high as 79.55 yen. The greenback fell to 77.57 yen as exporters sold during the local fix and short-term players attempted to take out stops reported at 77.50 yen, with more lined up all the way down from 77.40 yen to 77.00 yen. "With Japanese retail heavily long, the absence of intervention will lead to deeper position unwinding, which will likely trigger another move by the MOF to stabilise the currency," said Sebastien Galy, strategist at Societe Generale. China's annual inflation rate was roughly in line with expectations, falling in October to 5.5 per cent, a further pullback from July's three-year peak, giving Beijing more room to fine tune policy to help an economy feeling the chill of a global slowdown.