Euro steadies after fall, yen on the defensive

By Anirban Nag

SYDNEY (BestGrowthStock) – The U.S. dollar held on to broad gains on Wednesday while the euro looked increasingly vulnerable as a bout of short-covering appeared to run its course and fiscal worries resurfaced.

The dollar hovered a shade below 93 yen, having advanced past that level for the first time since early January on Tuesday. It was driven higher by strong consumer confidence data which bolstered views that the Federal Reserve will raise interest rates sooner than its Japanese or European counterparts.

The dollar index (Read more about the global trade. ) (.DXY: ) was at 81.45 in early Asian trade. It posted a bullish reversal on Tuesday and that, along with expectations of more robust numbers later this week, bode well for the greenback in the short term, traders said.

Still, the greenback’s gains could be capped on quarter-end flows, traders say. U.S. stocks (Read more about the stock market today. ) (.SPX: ) have rallied more than 6 percent in March which has left many non-U.S. investors underhedged.

“Accounts must therefore sell additional dollar at month-end to rebalance hedges,” JP Morgan said in a morning note. “Heading into month-end and quarter-end, fixing flows are likely to dominate trading activity in the run up to the payrolls report on Friday.”

Analysts say if U.S. nonfarm payrolls data shows the economy added jobs in March, it may boost the dollar and bolster expectations for Fed rate hikes this year.

Later on Wednesday, the private sector ADP report for March is due and economists expect 40,000 jobs were created against a loss of 20,000 jobs in February. Also, due on Wednesday is U.S. factory orders for February.

Strategists say the signs of improvement in the U.S. economy and growing fiscal problems in the euro zone are likely to keep the euro subdued in the near term against the greenback.

The euro steadied above $1.34, inching up to $1.3422 from $1.3412 late in New York on Tuesday when it posted a bearish outside trading day against the U.S. dollar.

That does not bode well for the single currency and comes at a time when spreads between Greek bonds and benchmark German bunds were widening again.

Greek plans to reopen a 20-year bond issue added to worries about its funding needs, while news that Ireland would take a bigger stake in the banking sector than planned added to the air of uncertainty.

The euro inched up against the yen to 124.64 yen, from 124.50 late in New York on Tuesday, when it tumbled from a two-month high of 125.44 yen. Near term support is seen around 124.17 which was the low on Tuesday.

The dollar was stronger on yen at 92.92 yen, after gaining 0.4 percent on Tuesday when it rose to as high as 93.02 yen after some option barriers at 93 were knocked down.

Technically, the bullish setup for the dollar/yen pair looks intact, traders say, with near term resistance seen around its January high of 93.76 yen.

Data out of Japan on Wednesday showed March manufacturing activity slowed slightly in March. Traders will also eye selling by Japanese exporters ahead of Japan’s fiscal year-end.

Meanwhile, the Australian dollar, edged up to $0.9191, ahead of a raft of domestic data that should argue the case for further rises in Australian interest rates. The Aussie also hovered near an 11-week high on the yen at 85.38.

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(Editing by Wayne Cole)

Euro steadies after fall, yen on the defensive