FOREX-Dollar draws support from US yields, euro vulnerable

* Dollar hits 6-wk high vs euro then retreats

* Previous day’s jump in Treasury yields supports dollar

* But comments from Fed’s Dudley see it lose a bit of ground

* Still, greenback above 55-day MA vs yen and Swiss franc

By Masayuki Kitano

TOKYO, Nov 16 (BestGrowthStock) – The dollar touched a six-week high
against the euro on Tuesday, supported by a rise in U.S.
Treasury yields, but later retreated as officials from the
Federal Reserve sounded a dovish tone and defended its easing
policy.

The 10-year U.S. Treasury yield jumped about 17 basis points
on Monday and hit a three-month high near 2.97 percent
(US10YT=RR: ), helping give a broad lift to the greenback.

The dollar index (Read more about the global trade. ), which measures the dollar’s value against
a basket of currencies, hit a six-week high of 78.744 (.DXY: )
earlier and the euro, also pressured by concerns over euro zone
debt, touched a six-week trough of $1.3560 (EUR=: ).

But the euro later recovered some ground to $1.3612, rising
0.2 percent on the day, as New York Fed President William Dudley
said the need to exit from current policies could be “years
away”, following up dovish remarks from Fed vice chairwoman
Janet Yellen. [ID:nN15280144] [ID:nN15286188]

Their comments may have been aimed at tempering the recent
rise in Treasury yields, as well as countering criticism of the
quantitative easing policy, said Koji Fukaya, chief currency
strategist at Credit Suisse in Tokyo.

“It would be problematic if long-term interest rates rise
and equities pull back,” he said.

“Whether it was the depth or the speed of the correction,
the aim is probably to calm that down a bit.”

The euro bounced back after dipping to just below its 55-day
moving average, now at $1.3567, and the top of the cloud on
daily ichimoku charts at $1.3565.

A trader for a major Japanese bank said it was also
supported by talk of buying on dips by Asian players and after
its drop stalled right near those support levels.

But it remains vulnerable due to the potential for more
short-covering in the dollar as the year-end approaches and as
uncertainty persists over whether Ireland will go for a state
bailout.

Downside targets include $1.3463, a 50 percent retracement
of the euro’s September-November rally, and $1.3364, a 38.2
percent retracement of its June-November rally.

<^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^

EU safety net description [ID:nLDE65718H]

More on how Ireland might tap funds [ID:nLDE6AE1S3]

Graphics:

Debt distribution http://link.reuters.com/rak65q

Bank exposure to Irish debt http://r.reuters.com/fez84q

Euro zone struggles with debt http://r.reuters.com/hyb65p

Ireland’s bailout challenge http://r.reuters.com/wuv48p

^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^>

With worries about fiscal troubles in Ireland and Portugal,
the market will watch meetings of European finance officials on
Tuesday and Wednesday. [ID:nLDE6AE2AI]

Euro zone finance ministers will try to find a way to end
Ireland’s debt crisis, with Dublin resisting pressure to seek a
state bailout by signalling that only its banks may need help.

“The longer it drags on, the longer we grind down,” said
Robert Ryan, FX strategist at BNP Paribas.

The dollar slipped 0.2 percent to 82.93 (JPY=: ) after
touching a six-week high of 83.28 yen on Monday.

Its 55-day moving average against the yen now lies at 82.83
yen, offering support. It faces resistance on daily ichimoku
charts at 83.17 yen, the bottom of the cloud, and then at the
top of the cloud at 84.13 yen.

The dollar’s fate has had a close correlation to U.S. yields
and their gap with rates on other currencies, as increases in
U.S. yields — other things being equal — tend to help the
greenback by making dollar investments more attractive.

That yield gap has recently moved in the dollar’s favour as
a result of the sell-off in Treasuries. The yield gap of 10-year
U.S. Treasuries over 10-year JGBs is now almost 190 basis
points, up from about 164 basis points last Thursday.
(US10YT=RR: ) (JP10YTN=JBTC: ).

The sell-off in Treasuries and short-covering in the dollar,
after weeks of dollar selling in anticipation of more QE from
the Fed, has gained steam ahead of next week’s U.S. Thanksgiving
holiday.

The fact that now is right around the 45-day advance notice
deadline thought to be used by some hedge funds for investors to
seek fund redemptions by the year-end has likely exacerbated
such moves as well, traders say.

They don’t rule out more dollar short-covering as investors
close their books for the year, with the euro and popular
high-yielder the Australian dollar seen as likely targets.
(Additional reporting by Wayne Cole in Sydney and Charlotte
Cooper in Tokyo, and Reuters FX analyst Krishna Kumar in Sydney;
Editing by Joseph Radford)

FOREX-Dollar draws support from US yields, euro vulnerable