FOREX-Dollar index hits 2-month high after U.S. job data

Mon Nov 5, 2012 9:27am IST

* Dollar near 4-month high against yen, tackles 50 pct retracement

* Euro hits 5-week low, threatens to fall below 200-day average

By Hideyuki Sano

TOKYO, Nov 5 (Reuters) - The U.S. dollar hit a two-month high against a basket of major currencies on Monday after job reports last week highlighted relatively solid U.S. economic fundamentals.

The dollar stood near a four-month high against the yen and the euro also hit a five-week low, both tackling major chart points, though uncertainty over Tuesday's U.S. elections hindered decisive breaks there for now.

The dollar index, a measure of the dollar's value against six major currencies, rose to as high as 80.629, its highest level since Sept. 7.

Against the yen, the dollar hovered at 80.53 yen, little changed from late U.S. levels last week, and just below a four-month high of 80.68 yen hit on Friday after solid U.S. payroll data.

U.S. employers stepped up hiring in October to 171,000, beating even the most optimistic forecast. The jobless rate rose a tenth of a point to 7.9 percent, though, as more people were looking for jobs.

Against the yen, the dollar has a major resistance at 80.65, a 50 percent retracement of its slow but steady decline from March to September.

"After the dollar/yen has tested a key Fibonacci level, it needs a bit of consolidation in the very near-term," said Teppei Ino, currency analyst at the Bank of Tokyo-Mitsubishi UFJ.

"But the dollar looks likely to maintain its uptrend. The dollar charts look bullish and better economic fundamentals in the U.S. compared to Japan's also favour the dollar," Ino said.

While the U.S. jobless rate still 3 percentage points above its pre-recession levels, recent uptick in U.S. jobs and consumption data contrasted with deteriorating economic picture in Japan and Europe.

Japan's industrial production, a key leading indicator of the manufacturing-driven economy, has been falling sharply, helping to prompt the Bank of Japan to ease its policy for two months in a row -- something it had not done for nearly a decade.

RANGE BREAK?

In Europe, data on Friday showed auto sales slumped to 1993 lows, underscoring the impact of the debt crisis on consumption.

The euro fetched $1.2829, flat from late U.S. levels, after having fallen to as low as $1.2816 in thin early Monday trade.

If the euro on Monday closes below its 200-day moving average, at $1.28297, that would be the first time since September, and before the U.S. Federal Reserve started QE3. Such a closing might signal a departure from its $1.28-$1.32 trading range since then.

The euro's immediate support is at the Oct. 1 trough of $1.28035.

The euro is also coming under pressure after a Greek court ruling on Thursday which indicated that pension reform demanded by foreign lenders may be unconstitutional.

On Monday, Greece's three-party government will submit the package of measures to parliament, which is likely to pass it by a slim majority on Wednesday.

On Nov. 11, there will be another crucial vote, on the 2013 budget that Athens must approve to receive aid it needs from the IMF and European Union to avoid bankruptcy.

But more immediate attention is on the U.S. presidential and congressional elections as the American economy, despite its recent firmness, faces a real threat of a renewed recession next year depending on how Washington deals with the fiscal cliff -- about $600 billion in government spending cuts and higher taxes due next year.

"Investors hate uncertainty, so there will be a sigh of relief when the election is over. Provided there is a clear election result and no change in the divided Congress, then traders and investors will see it as 'business as usual'," said Craig James, chief economist at CommSec.

If the party of the winning presidential candidate also gains control over Congress, "then investors would be expected to react positively," James said.

With the Republicans seen retaining control of the House, the re-election of President Barack Obama would be seen as raising the risk of policy paralysis, which is likely to mean no fresh deal for the fiscal cliff and a sharp economic downturn early next year.

On the other hand, if the Republicans win both the presidency and the Senate, that would be seen as positive for risk sentiment, though market players see limited chance of that happening.

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