Euro Dips on Profit-Taking, Fails to Test Resistance |
By Ian Chua and Hideyuki Sano
SYDNEY/TOKYO, Feb 21 (Reuters) – The euro dipped on profit-taking on Monday after hitting its highest level in more than 10 days as a European Central Bank official kept alive the prospect of the ECB hiking interest rates before the Federal Reserve.
The euro lacked the vigour to break above key resistances after Germany's main ruling party suffered a crushing defeat at a regional election in the city-state of Hamburg on Sunday, making it harder for Chancellor Angela Merkel to pass federal legislation.
"The German ruling party's loss is making it difficult to pursue the euro's upside for now," said a trader at a Japanese bank.
The common currency was trading at $1.3683, down 0.1 percent from late U.S. trade last week.
A trader for a Japanese brokerage house in Tokyo said the euro was pressured by profit-taking after its earlier rise.
The single currency briefly rose to $1.3727 in early Monday trade, the highest since Feb. 10, extending its rise sparked by comments on Friday from ECB Executive Board member Lorenzo Bini Smaghi that the bank stood ready to raise rates as needed to counter inflationary pressures.
The euro briefly pared its losses on Monday afternoon when Bini Smaghi said in a speech in Hong Kong that higher-than-expected inflation is a concern.
But it fell short of testing major resistance around $1.3750, including the currency's Feb. 9 peak of $1.3745.
"As the euro has been ploughing a rough $1.3450-$1.3750 range in the past two weeks, a break of $1.3750 could push the euro into a new trading range," said Katsunori Kitakura, chief dealer at Chuo Mitsui Trust Bank in Tokyo.
"U.S. bond yields will hold the key. If they fall further, that could lead to another round of selling the dollar," Kitakura added.
U.S. bond yields have been dipping since hitting a peak earlier this month as expectations of an early rate hike by the Federal Reserve recede.
That has helped to pin down the dollar index, which tracks the greenback's performance against a basket of major currencies. The index held steady at 77.673, not far from its Feb. 9 low of 77.504.
With U.S. financial markets closed for a holiday on Monday, the market may be looking to European economic data, including Germany's Ifo business climate survey for clues in the near term.
Shift To Yen Shorts
Against the yen, the dollar held steady near 83.18 yen, having retreated after hitting a two-month high of 83.98 yen last Wednesday on trading platform EBS.
Data from the U.S. Commodity Futures Trading Commission showed on Friday that speculators held net yen short positions for the first time since June in the week to Feb. 15.
The data surprised traders because the change in their positioning – to a net yen short position of 18,548 contracts from net yen long of 36,731 contracts – was the largest since February 2004.
Gareth Berry, an analyst at UBS Investment Bank in Singapore, said the shift in positions points to a sharp swing in sentiment that could bode well for the dollar.
"I think most investors are pretty convinced that dollar/yen is about to rise…and they are now waiting for a good entry point," Berry said, adding that the dollar could rise to 85 yen over the next month.
"That positioning data…could be the signal that will convince a lot of investors to say right now is the time."
The Australian dollar slipped 0.3 percent to $1.0124, not helped by Chinese tightening late last week.
Stepping up its fight to subdue stubbornly high inflation, Beijing last Friday raised banks' required reserves to a record 19.5 percent, meaning the country's lenders will have to lock up a bigger chunk of their deposits at the central bank instead of lending them out.
Some traders think the Australian currency has weathered a series of Chinese tightening extremely well.
So far this year, markets have greeted China's tightening measures with relief, rather than panic that these moves will threaten to derail economic growth.
About the author: Reuters
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