FOREX-Euro hovers near 11-month high; Fed, jobs data ahead

Mon Jan 28, 2013 8:25pm IST

* Euro pauses after reaching 11-month high
    * Yen firm but weakness to persist on prospects of easing
    * Investors look ahead to Fed policy meeting, U.S. jobs data


    By Wanfeng Zhou
    NEW YORK, Jan 28 (Reuters) - The euro hovered near an
11-month high against the dollar on Monday after data showed
U.S. durable goods orders rose more than expected last month and
on growing optimism about the euro zone economy.
    The dollar had also earlier hit a 2-1/2-year high against
the yen for a third consecutive session, before surrendering
gains. Analysts expect more yen weakness on a view that Japan
will adopt further monetary stimulus to fight deflation.
    Moves in major currencies were limited ahead of key economic
events later in the week, including a Federal Reserve meeting
and the monthly jobs data for January.
    "A busy week ahead of U.S. events and data caused investor
sentiment to largely start the week in neutral," said Joe
Manimbo, senior market analyst at Western Union Business
Solutions in Washington.
    The euro was little changed at $1.3461, slipping from
the 11-month high of $1.3479 hit last Friday. Traders cited
option expiries at $1.3400, which could act as support in the
near term.
    "After such a strong move up (in euro/dollar) it is normal
for markets, at least in the short run, to not see much
additional buying and see some profit-taking," said Ulrich
Leuchtmann, head of FX research at Commerzbank.
    "There is still some room for euro to go higher, but the
road upwards will be characterised by bumps, pauses and even by
corrections."
    Traders said major resistance levels for the euro/dollar
include its 2012 high of $1.3486 and the 50 percent retracement
from the high in May 2011 to the low in July 2012 at $1.3492.
    The euro rallied on Friday after data showed European banks
plan to repay more than expected of the loans they borrowed from
the European Central Bank during the debt crisis, indicating
growing confidence. 
    German data also provided evidence that Europe's largest
economy is gathering pace after contracting late last year.
    The European Central Bank is the first major central bank to
start winding back some of its unconventional monetary policy
measures, unlike the U.S. Federal Reserve and Bank of Japan,
which are buying bonds open-endedly to stimulate growth. More
stimulus usually weighs down on a currency as it increases its
supply. 
    Positioning data on Friday showed speculators had increased
their net long euro positions, while bets for further weakness
in the dollar rose to its highest since the week of Oct. 2.
 
    In the options market, traders reported demand for euro
calls, which are bets on more gains. The one-month risk
reversals traded at 0.1 vols in favour of euro
calls, having flipped from puts towards the end of last week.
    The euro was particularly strong on the crosses having
touched a fresh eight-month high against the Australian dollar
 of A$1.2950 and a 13-1/2-month high against the
British pound of 85.56 pence on Monday.
    Morgan Stanley, in a note, recommended investors buy the
euro against the Australian dollar, targeting it to rise to
A$1.3400, with a stop-loss at A$1.2600, as more investors,
especially those in Japan, look to buy European assets.  
    The euro rose to a 21-month high of 122.91 yen,
but slipped to trade down 0.1 percent on the day at 122.18 yen.
    The dollar was little changed at 90.86 yen, having
earlier risen to 91.25, the strongest since June, 2010. Traders
cited bids at 90.50 yen, which could act as support.
    Increasing rhetoric from Japanese authorities that they are
open to the dollar rising to the 100 yen level has helped weaken
the currency further, raising eyebrows abroad and sparking talk
that it is triggering a currency war. 
    The yen's weakness also stemmed from a rise in U.S. bond
yields, with which the currency has a close inverse correlation.
The 10-year U.S. bond yield shot up on Monday,
helped by U.S> durable goods data.

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