FOREX-Dlr gains against euro for 2nd straight day

* Dollar index rises from 10-mth lows

* Euro, Aussie fall against U.S. dollar

* Uncertainty whether QE2 has been fully priced in
(Updates prices, adds quote, details)

NEW YORK, Oct 18 (BestGrowthStock) – The dollar rose against the
euro on Monday for the second straight session as investors
scaled back expectations of the size of a second round of
quantitative easing.

Investors are more certain there will be more easing after
Federal Reserve Chairman Ben Bernanke on Friday offered his
most explicit signal yet that the U.S. central bank was set to
ease monetary policy further though the question remains the
amount. For more see [ID:nN15187998].

The dollar extended a rebound that started late last week,
with the euro retreating from an 8-1/2-month high and the
Australian dollar (AUD=D4: ) down from Friday’s peak above
parity, the currency’s highest level since it was floated in
1983.

Traders said short-term speculation and model accounts and
Asian central banks were active in the session as the euro fell (Read more about the trembling euro. )
as low as $1.3830. Next downside targets are technical support
at $1.3825 and then the Oct. 12 low of $1.3775.

There was muted reaction to a U.S. Treasury Department
report on foreign exchange flows [ID:nN18262411] or a Federal
Reserve report on industrial production [ID:nWALILE6P7].

“It is a continuation from Friday,” said Chuck Butler,
president of EverBank World Markets in St. Louis. “Now everyone
knows (QE) is going to happen we are seeing some profit taking
in the euro dollar and commodities.”

The euro was down 0.1 percent on the day at $1.3968 (EUR=: ),
down from a more than eight-month high of $1.4161, hit on
trading platform EBS on Friday (EUR=EBS: ). The session low on
Monday was $1.3830 on EBS.

Traders said much of the day’s action in the euro was
technical after the breach of the $1.3850 level wasn’t
sustained. The rise from the low began in London trading.

Investors “have not really changed their positive
underlying view of the euro,” said Joseph Trevisani, chief
market analyst at FX Solutions in Saddle River, New Jersey.

Data from the U.S. Commodity Futures Trading Commission
showed speculators trimmed bets against the dollar in the
latest week but still had hefty wagers against it. [IMM/FX]
^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^
Graphic on net U.S. dollar long positions
http://r.reuters.com/kus26k
^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^

The dollar index (Read more about the global trade. ) (.DXY: ) was little changed at 77.032, after
rising to 77.645. The rally needs to extend above its Oct. 12
high of 77.93 to signal a short-term bottom is in place after
Friday’s 10-month trough of 76.144, analysts said.

The index has lost nearly 5 percent in the past month as
investors increased their bets against the dollar on heightened
market expectations for the Federal Reserve to unveil a second
round of quantitative easing as early as November.

“The dollar’s move down has been extremely aggressive and
there are investors wondering whether or not too much
quantitative easing has been priced in,” said Jane Foley,
senior currency strategist at Rabobank.

Market players were also trimming their bets against the
dollar ahead of a forthcoming G20 meeting and before hedge
funds’ book closings at the end of November, analysts said.

QE PRICED IN?

Two more Fed officials over the weekend joined Bernanke in
arguing for further aggressive action as U.S. inflation
unexpectedly slowed in September even as retail sales picked
up. [ID:nN16208445]

“More and more Fed officials are signing up for QE and if
anything this short squeeze in the dollar looks to be
temporary,” said Neil Mellor, currency strategist at Bank of
New York Mellon.

But the dollar ceded ground against the yen, falling 0.3
percent to 81.17 yen (JPY=: ) and edging back towards a 15-year
low of 80.88 hit on EBS last week (JPY=EBS: ). Traders reported
sovereign demand around the 81.15 level.

The Australian dollar recovered from the day’s declines and
was last up 0.1 percent to $0.9915 (AUD=D4: ). The Aussie rose to
$1.0004 on Friday, but hit a low of $0.9801 on Monday after
some macro funds sold, with traders citing decent stop-loss
orders at $0.9780.
(Reporting by Nick Olivari; Additional reporting by Anirban
Nag in London, Editing by Chizu Nomiyama)

FOREX-Dlr gains against euro for 2nd straight day