Reuters: US Dollar Report: REFILE-FOREX-Euro up on short-covering; yen retreats

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REFILE-FOREX-Euro up on short-covering; yen retreats Mar 21st 2012, 04:56 Wed Mar 21, 2012 12:56am EDT * Euro hits 2-wk high vs dollar on short-covering * Yen dips to 5-month low vs euro * Dollar/yen may see more upside-trader By Masayuki Kitano SINGAPORE, March 21 (Reuters) - The euro hit a two-week high against the dollar on Wednesday due to short-covering, with recent signs of stabilisation in euro zone debt markets helping support the single currency. The yen dipped to a fresh five-month low versus the euro, and hovered near an 11-month trough against the dollar, staying on the defensive in the wake of the Bank of Japan's monetary easing last month. The euro rose 0.3 percent to $1.3269, after climbing to $1.32835 at one point, its highest level since March 8. "The market is a little bit short euros, so that's what's driving it," said Jesper Bargmann, head of G11 spot FX in Asia for RBS in Singapore. The euro's rise may stall at around $1.3280 to $1.3300 in the near term, Bargmann said, adding that the single currency could squeeze a bit higher if $1.3300 is breached. "But I wouldn't suddenly become bullish for the euro. I think it's just driven by short-term positioning," he added. The euro's latest rise came in the wake of its drop to a one-month low near $1.3004 last week, when the dollar pushed higher as investors scaled back expectations for the U.S. Federal Reserve to conduct further monetary stimulus in the near term following a modest brightening of the Fed's economic outlook. One factor that supporting the euro is a narrowing in U.S.-German two-year yield spreads, said Christopher Gothard, head of FX for Brown Brothers Harriman in Hong Kong. German two-year yields had been inching lower since late February, and the U.S.-German two-year yield spread had widened recently. "The dip in European yields put pressure on the euro previously but now that effect has worn off as the Greece crisis receded and euro zone government bond markets stabilised," he said. The U.S.-German two-year yield spread is now at roughly 5 basis points, down from around 17 basis points at one point last week . The euro's upside, however, may be limited, Gothard said. "If U.S. data remains solid U.S. yields may continue to track higher, while Europe faces some risks to this euro strength from the Italian labour reform talks and continued poor economic news from Spain," he added. The single currency touched a five-month peak of 111.15 yen on trading platform EBS at one point, and was last changing hands at 111.06 yen, up 0.3 percent from late U.S. trade on Tuesday. The dollar held steady against the yen at 83.71 yen, not too far from an 11-month high of 84.187 yen hit last week. Traders were looking to put on more bets against the yen, market players said. "We maintain a view of being long USD/JPY on dips as well as CAD/JPY and MXN/JPY. The market continues to want to sell JPY, keeping USD/JPY well bid. Some of it has to do with rising yields in the US," said Sebastien Galy, strategist at Societe Generale. Bargmann at RBS said the dollar could rise towards 85.00 yen initially if it clearly breaks above the 84.00 to 84.20 yen area and see even more gains over the next few months. "There's very little pain in the trade at the moment. I think some people have it on, but not in the size that they want, so I think there are still buyers on the dips," Bargmann said. "I think that's the only clear trend we have at the moment," he said. Link this Share this Digg this Email Reprints

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