Monday October 11, 2010 - 21:24:15 GMT
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Reuters - www.reuters.com
FOREX-Dollar up on bets recent declines too far, too fast
FOREX-Dollar up on bets recent declines too far, too fast
* US dollar shorts largest since at least mid-2008
* G7/IMF meetings fail to reach agreement on currencies
* Dollar hits 15-year low vs yen but steadies around 82.00 (Updates prices)
NEW YORK, Oct 11 (Reuters) - The U.S. dollar rallied against the euro and yen on Monday in holiday-thinned trading as investors bet that the greenback's recent declines were too far, too fast.
Sentiment toward the dollar remained broadly bearish, however, as the Federal Reserve looked set to pump more cash into the economy after a weekend meeting of finance leaders produced no quick fix for tensions in currency markets.
The euro had earlier climbed as high as $1.4012 on electronic trading platform EBS, but it lost momentum after failing to hold above the $1.40 area for a second time since hitting a 8-1/2 month high of $1.4030 last Thursday.
"Clearly, $1.40 has been a pretty big resistance level for euro/dollar. The market is looking for any kind of excuse to sell euro/dollar for the time being," said Boris Schlossberg, director of currency research at GFT in New York.
"While the fundamentals are still very dollar bearish, the positioning is actually dollar bullish. At this point, the positioning is going to matter more than the fundamentals in terms of driving trade," he added.
Currency speculators boosted bets against the dollar to $30 billion in the latest week, the largest amount since at least mid-2008, data from the Commodity Futures Trading Commission showed. Net long positions on the euro rose to 48,243 contracts, the highest since at least October 2009. For details, see [ID:nN08169848]
<^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^ Graphic on FX positioning r.reuters.com/kus26k Graphic on trade-weighted FX moves since 2007 r.reuters.com/qun86p
The euro fell as low as $1.3866 on EBS and was last down 0.4 percent at $1.3887 EUR=, well below a high of $1.4012 hit earlier in the global session.
The pair remains above its 55-week moving average, which is near $1.3590, suggesting "the medium term uptrend is still in place," strategists at Citigroup wrote in a note.
Traders saw support in the $1.3750-$1.3690 area with resistance at around $1.4216, a level which acted as support on Dec. 22, when the euro was declining.
The next key level is at about $1.4372, the 76.4 percent retracement of the euro's fall from November to June.
G7, FED COMMENTS
The dollar sank to a 15-year low of 81.37 yen on EBS JPY=EBSJPY= in Asian trade but recovered to last trade 0.2 percent higher at 82.02 yen.
Thin market liquidity because of public holidays in the United States and Japan exacerbated price moves.
The risk of another round of intervention to weaken the yen seemed to have grown after Japan weathered the flurry of weekend G7 and IMF meetings with hardly any criticism of its recent yen sales, but there was no sign of action on Monday.
Traders said the next focus would be on minutes from the Federal Reserve's September policy meeting, due out on Tuesday, for fresh insight into the central bank's thinking on further monetary easing.
A round of speeches this week by Fed officials, including Chairman Ben Bernanke, could also shed light on policymaker's views on the economy and monetary policy.
"Market expectations for quantitative easing in November are very high and very strong," said Nick Bennenbroek, head of currency strategy at Wells Fargo. "If Bernanke doesn't do anything to dissuade those market expectations, then the dollar will probably move a little lower."
With the IMF's failure to reach an accord on currencies, analysts said the way is now clear for the Fed to resort to even more stimulus next month, though investors are still debating the size and scope of the move.
The IMF last week ratcheted down expectations for the United States but still forecast U.S economic growth at 2.6 percent in 2010 and 2.3 percent in 2011 compared with 1.7 percent and 1.5 percent for those periods in the euro zone. [ID:nWAL5LE6MD].
The dollar rose 0.2 percent against a basket of currencies .DXY to 77.442, not far from a nine-month low of 76.906 hit on Thursday. (Reporting by Nick Olivari and Wanfeng Zhou; Editing by Padraic Cassidy)
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