FOREX-Euro heads for best month in more than a year vs dollar

Thu Jan 31, 2013 8:28pm IST

* Euro gains 2.8 percent vs dollar in January, yen loses 4.8
percent
    * Fed keeps bond-buying stimulus in place, dollar negative
    * Focus shifts to Friday's U.S. nonfarm payrolls data


    By Wanfeng Zhou
    NEW YORK, Jan 31 (Reuters) - The euro was headed for its
best month in more than a year against the dollar on Thursday,
as signs of recovery in the euro zone's economy and banks set
the currency on a bullish trend.
    The yen tumbled broadly in January on expectations of
further monetary easing in Japan. The dollar was on pace for a
gain of 4.8 percent versus the yen, while the euro rallied 7.9
percent, the biggest monthly rise since February 2012.
    "The overall recent trends are intact. The euro probably
wants to go higher and the yen probably wants to go lower," said
Nick Bennenbroek, head of currency strategy, at Wells Fargo Bank
in New York.
    The euro was little changed at $1.3563 on
Thursday, not far from Wednesday's high of $1.3587, its
strongest level since November 2011. It was on track for a 2.8
percent rise this month, the biggest since October 2011.
    Weak German retail sales data released on Thursday slightly
dented the bullish sentiment on the euro, but it was offset by a
strong reading on the country's labor market and does little to
change to the currency's rising trend.
    By contrast, the Federal Reserve on Wednesday sent no signal
that its bond-buying stimulus plan may end anytime soon, keeping
the negative bias in the dollar.        
    A huge fourth-quarter loss reported by Deutsche Bank
 weighed on the euro, while traders said month-end
flows could trap it in a range and leave it below a reported
option barrier at $1.3600.
    Further upside targets are at $1.3640, the high in
mid-November, 2011, and $1.3833-35, the 61.8 percent retracement
of the move down from May 2011 to July 2012, which also
coincides with the July 2011 low.
    Against the yen, the euro slid 0.1 percent to 123.47
.
    The dollar was little changed at 91.12 yen, having
hit a high of 91.40 yen on Wednesday, its strongest level
versus the yen since June 2010. The dollar has rallied 12
percent versus the yen since mid-November.
    Traders noted reportedly large options expiries due later on
Thursday at 90.00 and 91.50 yen were likely to keep the dollar
within this week's range from 90.32 to 91.41 yen.
    Focus will now turn to U.S. jobs data on Friday, which will
shed light on the health of the labor market. The Fed said the
U.S. job market would continue to improve at a modes pace, and
pledged to keep purchasing securities until unemployment falls
"substantially." 
    While the Fed and the Bank of Japan both signalled more
stimulus, the European Central Bank said last week that banks
would pay back a greater-than-expected amount in loans. The ECB
is the first major central bank to start unwinding some of its
unconventional monetary policy measures.
    Some analysts said the euro also gained as fears of a Greek
exit and a breakup of the euro zone eased, prompting investors
to reinvest in the region after shunning it much of last year.
    "The euro could rise a few more percent from here," said
Richard Falkenhall, currency strategist at SEB in Stockholm.
    European politicians have ramped up talk of a "currency war"
as the euro has been the biggest beneficiary of weakness in the
yen and the dollar. But ECB policymakers have maintained a view
that the euro is well within its long-term averages, reflecting
little desire to curb its recent strength.
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