Reuters: US Dollar Report: FOREX-Euro steady near highs, riding ECB expectations

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FOREX-Euro steady near highs, riding ECB expectations Aug 29th 2012, 11:39 Wed Aug 29, 2012 7:39am EDT * Euro helped by bets ECB will rescue euro zone * Long dollar positions trimmed in run-up to Jackson Hole * Norges Bank rate decision 1200 GMT By Anirban Nag LONDON, Aug 29 (Reuters) - The euro held near recent highs against the dollar on Wednesday, buoyed by expectations the European Central Bank will act decisively to tackle the debt crisis and of more monetary easing in the United States. ECB chief Mario Draghi said in a newspaper on Wednesday that the bank needed to employ "exceptional measures", bolstering expectations it was working on a plan to buy bonds to lower peripheral euro zone states' borrowing costs. Investors were also wary of the dollar in the run-up to a meeting of central bankers at Jackson Hole. Any hints of more easing from Federal Reserve Chairman Ben Bernanke, who speaks there on Friday, could weigh on the dollar. The euro was flat at $1.2550, having hit a session high of $1.25735 on trading platform EBS after Draghi's comments. That took it close to last week's peak of $1.2590, its highest since early July. Traders said it could face resistance around its 100-day moving average of $1.2596. "There is a lot of hope that the ECB will do something and in the near term a short squeeze in the euro is possible, which could see it rise to $1.2750," Saxo Bank currency strategist John Hardy said. "But will the ECB measures be enough? I don't think so because systemic problems will remain and the region needs a weaker euro." Strategists said the single currency would struggle to make much headway before an ECB policy meeting on Sept. 6, at which investors are looking for concrete details on any bond-buying scheme before adding euros to their holdings. The German Bundesbank opposes any bond buying, but ECB policymakers are working overtime to assuage its fears. "The hope in the market is that big steps are going to be taken in September that are going to alleviate the strains in the sovereign debt market," said Derek Halpenny, European head of currency research at Bank of Tokyo-Mitsubishi. "On top of that there's the Fed element to throw in. A large portion of the market is expecting QE3 in September." The euro has rallied in recent weeks since Draghi said he would do "whatever it takes" to preserve the currency. It has also made solid gains against the dollar since Fed minutes last week suggested more monetary easing could follow "fairly soon". EVENT RISK HIGH With many in the market trimming long dollar positions in anticipation of more Fed easing, the chance of disappointment is high. If Bernanke does not hint at any near-term easing, the dollar could rebound and push the euro lower, traders said. In the euro zone, the German constitutional court rules on the region's bailout funds on Sept. 12, euro zone finance ministers meet on Sept. 14 and a report on Greece by its international lenders is due by early October. Bank of Tokyo-Mitsubishi's Halpenny said the risk of disappointment from any of these events was high, and recommended selling the euro if it climbed close to $1.28. The dollar index was 0.07 percent higher to 81.428, edging up from a two-month low of 81.221 hit last week. Some market players said Bernanke may just reiterate that the Fed has room to act. That could leave the market guessing until the Fed's next policy meeting on Sept. 12-13. The currency options market is placing a limited premium on contracts covering Friday, suggesting players expect only minor price reaction to Bernanke's speech. Even beyond Jackson Hole, options are not pricing in large swings, with one-month euro/dollar volatility still below 10 percent despite heavy event schedules next month. The dollar was steady at 78.55 yen, while the euro was flat at 98.65 yen. Investors also awaited a Norges Bank rate decision at 1200 GMT. Strategists said rates were likely to stay on hold at 1.5 percent, with little impact on the Norwegian crown, although policymakers might try to talk down recent crown strength. Link this Share this Digg this Email Reprints

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