Reuters: US Dollar Report: FOREX-Euro firm on policy hopes, Aussie jumps on jobs data

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FOREX-Euro firm on policy hopes, Aussie jumps on jobs data Jun 7th 2012, 03:41 Wed Jun 6, 2012 11:41pm EDT * Euro bears cut positions on hopes of actions on Spanish banks * Rising speculation of more stimulus from Fed helps battered risk assets * Spanish bond auction, Bernanke's testimony in focus * Aussie jumps after unexpected gains in payrolls By Hideyuki Sano TOKYO, June 7 (Reuters) - The euro held firm against the dollar on Thursday, as vague hopes of more policy action, both in Europe and the United States, led short-term players to wind back their bets against the currency. Also boosting risk sentiment in general, the Australian dollar shot up to a three-week high following surprising strength in Australian employment data. The single currency last stood at $1.2569, having briefly risen to $1.25859, its highest level since late May and about 2.3 percent above a two-year low of $1.2288 hit last week. The euro has an immediate resistance around $1.2600, followed by $1.2671, a level representing the 38.2 percent retracement of its May 1-June 1 fall. Germany and European Union officials are urgently exploring ways to rescue Spain's stricken banks, European sources said on Wednesday. Though Spain has not yet requested outside assistance and is resisting being placed under international supervision, signs of sense of crisis on the side of policymakers - such as Group of Seven conference call - were enough to make market players cautious of selling the euro too much. In addition, speculation of more stimulus from the U.S. Federal Reserve also helped bolster risk assets as some of the Fed's top officials beat the drum for a need of stimulus. Janet Yellen, the Fed's vice chair, laid out the case for more easing to bolster a fragile economy as financial turmoil in Europe mounts. While Yellen is known to be a dove and her comments did not surprise markets, other officials, such as Atlanta Fed President Dennis Lockhart, also talked about possible need for an action, saying his level of concern had risen since the Fed's April meeting. "Since the weak U.S. job data, there's been rising speculation of more stimulus from the Fed. That is making dollar long positions uncomfortable," said Katsunori Kitakura, associate general manager of market-making unit at Sumitomo Mitsui Trust Bank. "The market is sensing some actions from policy makers may be drawing nearer." AUCTION IN SPAIN Still, analysts warned that markets will remain choppy, with risk assets vulnerable to further falls. "Market expectations for a new wave of quantitative easing in the major developed market economies have increased, but this might not tackle the cause of the current challenges or, indeed, allay market anxieties related to banking and sovereign solvency," said Koon Chow, strategist at Barclays Capital. "Until these problems are tackled head on, it will be hard for emerging market assets to rally independently." In the short-term, traders said further gains in the euro will depend on Spain's bond auction due later in the day. The sale of up to 2 billion euros of bonds is seen as a crucial test of Madrid's ability to tap the bond market. Also in focus is Federal Reserve Chairman Ben Bernanke's testimony on the economic outlook before the congressional Joint Economic Committee at 1400 GMT. The biggest mover in Asia was the Australian dollar, which rose to three-week high of $0.9967 on upbeat job data, which came a day after upbeat GDP data. It last stood at $0.9945, up 0.3 percent on the day. The U.S. dollar managed to outperform the yen, which was hit broadly as risk appetite improved. The yen was also dampened by recent threats from Japanese authorities to curb its strength. The dollar climbed to a one-week high of 79.405 yen, putting even more distance from a 3-1/2 month trough around 77.65 set on June 1. Link this Share this Digg this Email Reprints

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