TOKYO, July 5 (Reuters) – The dollar held steady near a two-month low on Monday and the euro paused after last week’s boost from unwinding of short and leveraged positions, with traders and analysts seeing scope for it to squeeze a bit higher.
With attention turning to a slowdown in the United States and away from the euro zone’s banking and government debt woes, analysts said the next upside target for the euro was a May reaction high at $1.2673 EUR=.
Leveraged trades funded in the euro, be it long dollar, commodity currencies or emerging markets, were being cut, while at the same time the euro selling seen in April and May looked to be exhausted for now.
“I’m not seeing money flooding back into euro on a broad basis. You really have to describe it as exhaustion,” said Greg Gibbs, FX strategist at Royal Bank of Scotland in Sydney.
The question for markets at this point, with concern that the U.S. recovery was losing steam, was what should they buy.
“The fear of maybe not necessarily double-dip but certainly a very long period of low employment growth and very low rates is definitely playing into the markets’ view,” Gibbs said.
The euro EUR= eased 0.2 percent to $1.2540, with support seen around its 55-day moving average, currently near $1.2530. Last week, the euro gained 1.5 percent against the dollar, reversing a loss from the previous week and gaining greater distance from June’s four-year low at $1.1876 on trading platform EBS.
The euro faces resistance near $1.2595, the bottom of the cloud on daily Ichimoku charts, and then near $1.2620, a 38.2 percent retracement of its drop from its March high near $1.3820 down to its four-year low.
The euro’s rise late last week had stalled at $1.2613, just short of that retracement level.
Jonathan Cavenagh, currency strategist at Westpac in Sydney, said leveraged trades funded in euro were being cut and the low level of yield on the U.S. 10-year Treasuries suggested the euro should be trading higher.
U.S. yields have fallen sharply after a slew of soft U.S. economic numbers suggested recovery would be tepid. The 10-year note yield US10YT=RR has fallen below the psychological 3 percent mark, trading at 2.98 percent.
Friday’s monthly jobs report showed the economy shed 125,000 jobs in June, while private payrolls rose less than expected. Overall employment fell for the first time this year as thousands of temporary census jobs ended.
The data followed a raft of weak reports that suggested consumer spending, housing and factory activity were moderating. [ID:nN01165161]
The dollar lost ground last week before the data and on Friday the dollar index .DXY hit its lowest level in nearly two months at 84.132.
By Monday, it had steadied at 84.495, up 0.1 percent from late U.S. trading on Friday, with short-term support seen around 83.20, roughly a 38.2 percent retracement of the index’s move from a low of 74.17 in November to a high near 88.71 in June. Trade was quiet, with U.S. markets closed for a holiday.
The dollar edged up 0.2 percent against the yen to 87.92 yen, pulling further away from a seven-month low of 86.96 yen set last week, with some talk of dollar buying by Japanese importers.
But it lost 1.8 percent against the yen last week as U.S. yields fell, and traders said there was talk of options triggers below 85 yen. The dollar hasn’t fallen below 85 yen since November last year when it hit a 14-year low at 84.82 yen.
Data from the Currency Futures Trading Commission showed net long yen positions jumped in the week to June 29. The value of the dollar’s net long position slipped to about $9.5 billion in the week ended June 29 from $12.2 billion in the prior week.
After reading this article, people also read:
* IMM-Currency speculators trim bets on US dollar-CFTCJul 2, 2010
* European shares set to inch upJul 5, 2010
* Central bankers shoulder bigger burdenJul 4, 2010
* MONEY MARKETS-Euro rates up on expected demand; U.S. flatJul 2, 2010
* BP eyes stake sale as “superskimmer” snaggedJul 4, 2010