* Short covering and intervention talk drive up euro
* USD and yen supported by flight to safety
* Aussie struggling near 10-mth lows, risk reversals spike
By Anirban Nag
SYDNEY, May 21 (Reuters) - The euro inched up on Friday as a bout of short-covering extended, while the Australian dollar was struggling near 10-month lows hurt by a wave of long liquidation by investors like hedge funds and Japanese margin traders.
The yen
In Asian trade, the euro
On the year, however, the euro is down over 12 percent against the dollar. Despite Thursday's rise, sentiment on the currency remains decidedly negative, with investors concerned about a seeming lack of unity among euro zone leaders in addressing the region's debt crisis. [ID:nSGE64J05H]
More investors sold the high-yielding Australian dollar
The Australian dollar
"This is a classic shift in investor focus," said Greg Gibbs, currency analyst at RBS. "The Aussie has plunged through some key technical levels and will find it tough to regain its feet. It will be treated as one of the primary vehicles to express a negative view on the European debt crisis and fears of sustained contagion to the global banking system."
Indeed, Aussie/dollar 1-mth risk reversal
The Aussie also slid on the euro
Swiss National Bank Vice Chairman Thomas Jordan on Thursday repeated a pledge to shield Switzerland from the euro zone debt crisis that could potentially lead to deflation.
The euro
The dollar recovered some of its steep losses against the yen