* Euro needs to clear $1.3500 to extend recovery
* Single currency hovers near 14-month high set on Tuesday
* Yen edges lower, downtrend seen intact
* US GDP and Fed decision loom, could be USD negative
By Masayuki Kitano
SINGAPORE, Jan 30 The euro held steady near a
14-month high versus the dollar on Wednesday, with market
players focusing on whether it can breach resistance at $1.3500
and set itself up for further gains.
Some upbeat German economic data and signs European banks
may have turned the corner have bolstered hopes that the worst
of the euro zone's crisis has passed, boosting the euro more
than 2 percent against the dollar so far this year.
For now, the focus was on technical resistance at $1.3500,
where there has also been talk of an option barrier.
"I think there is a possibility of a euro overshoot on the
upside," said Sim Moh Siong, FX strategist for Bank of
Singapore, adding that a breach of $1.3500 could open the way
for the euro to start heading towards $1.3900.
"It is a fact that things are normalising in Europe. But it
is also a fact that the structural problems and issues remain
unresolved and could come back to haunt the euro," he said,
adding that the near-term outlook for the single currency looked
The euro held steady at $1.3495, right near a high of
$1.3498 hit on Tuesday, the single currency's strongest level
against the dollar since December 2011.
Dealers were also looking ahead to the outcome of the
Federal Reserve's first policy meeting of the year at 1915 GMT.
The central bank is widely expected to reaffirm its commitment
to a super-easy policy until unemployment falls sharply, which
could ease concerns about an early end to bond buying.
In contrast, the European Central Bank seems disinclined to
ease any further, and that contrast in outlook has helped to
bolster the euro this month.
A trader for a U.S. bank in Singapore said that there may be
scope for institutional investors to give the euro an added
lift, judging from the way they seem to be positioned now.
"I think that their positions are not really built for long
(euro) positions yet," the trader said.
News last week about euro zone banks' early repayments of
three-year loans to the European Central Bank was seen as a sign
that parts of the euro zone banking system may be on the mend,
and has helped to bolster the euro.
A survey on Friday that showed improvement in business
confidence in Germany, has been another supportive factor.
Against the yen, the euro rose 0.3 percent to 122.75 yen
, hovering close to a peak of about 122.90 yen set on
Monday, the euro's highest level versus the Japanese currency
since April 2011.
The dollar edged up 0.2 percent to 90.97 yen, heading
back in the direction of Monday's high around 91.25 yen, the
greenback's strongest level since June 2010.
Selling the yen has been mostly a one-way bet since
mid-November, based on expectations that Japanese Prime Minister
Shinzo Abe would push the Bank of Japan into more aggressive
monetary easing to beat deflation.
Present BOJ Governor Masaaki Shirakawa, whose term ends in
April, is expected to be replaced with a much more dovish
governor, who could then bring forward any easing.
Aside from the Fed, investors are looking out for the first
estimate of U.S. fourth-quarter GDP due later on Wednesday, a
couple of days before the January jobs report.