FOREX-Dollar falters on U.S. jobs but losses seen capped

* U.S. payrolls weaker than expected, weighing on dollar

* ECB bond buying, euro-zone data underpin euro

* Dollar/yen falls to 2-1/2-week low
(Adds quote, U.S. data, updates prices)

By Gertrude Chavez-Dreyfuss

NEW YORK, Dec 3 (BestGrowthStock) – The dollar dropped across the
board on Friday after data showed the U.S. economy created far
fewer jobs than expected, although persistent euro zone debt
problems may limit losses, particularly against the euro.

Many analysts viewed the weak employment report as an
outlier amid a slew of generally positive U.S. data released
the last few weeks that suggested the economy was slowly
gaining traction.

Labor Department data showed U.S. nonfarm payrolls rose
39,000 last month, much weaker than expectations for 140,000
new jobs. Also, the unemployment rate increased to 9.8 percent.
For more on employment report see [ID:nN02238002].

While the numbers further support the Federal Reserve’s
quantitative easing program, which is a dollar-negative factor,
analysts said the Fed would need a series of anemic data to
exhaust all of the $600 billion allocated for boosting the
economy.

“U.S. nonfarm payrolls are extremely volatile, so one data
point is not probably enough to tell much about future trends,”
said Ugo Lancioni, currency strategist and portfolio manager at
Neuberger Berman in London.

The firm has $180 billion in assets under management and
Lancioni helps oversee the company’s fixed-income assets
totaling $about $80 billion.

“I don’t think the big picture has changed much. Clearly,
the U.S. is dealing with very high unemployment. But there are
indications that the U.S. economy is gradually starting to pick
up again,” Lancioni said.

By contrast, the euro zone’s peripheral countries remain
mired in a deep pit of debt, which should keep the euro’s
downtrend intact for now. European authorities have bailed out
Ireland but investors are still worried about which may be the
next euro-area country to require assistance.

The euro, however, recovered on Friday, posting its best
three-day gain since May, mainly due to the European Central
Bank’s purchases of peripheral euro zone bonds. On the week,
the euro zone single currency was on track for a 0.7 percent
rise.

KEY TECHNICAL LEVELS

In midday New York trade the euro was up 1.1 percent at
$1.3369 (EUR=EBS: ), blowing past the key 100-day moving average
at $1.3325 and well above a 2-1/2-month low of $1.2969 hit on
Tuesday.

The next key level to watch is $1.3467, the 38.2 percent
retracement of the euro’s move from its peak at $1.4283 in
early November to the $1.2969 trough.

In the options market, analysts said negative sentiment on
the euro had turned about two days ago and was now neutral.

David Tien, a director at Credit Suisse’s Global
Algorithmic Strategy and Modeling group in New York, said
extreme demand for bearish options structures on the euro
versus the dollar which began in mid-November has significantly
diminished “as the extension of special ECB liquidity
facilities appears to have calmed the market in the near
term.”

On Thursday, the ECB extended nonstandard provisions,
committing to provide unlimited one-week, one-month and
three-month funding for vulnerable euro zone banks until at
least April.

A rise in euro zone service sector activity, retail sales
and the Bundesbank’s raising of Germany’s growth forecasts for
this year also supported the single currency.

In line with the euro’s recovery, other euro-zone-linked
assets such as exchange-traded funds also gained. The
CurrencyShares Euro Trust traded on the Chicago Board Options
Exchange rose 1.7 percent to $133.18 (FXE: ). This ETF holds euro
on-demand deposits in euro-denominated bank accounts.

The euro VIX index (.EVZ: ), meanwhile, declined to 13.85
percent, the lowest in about two weeks, suggesting easing
anxiety about euro zone worries. This index measures the
market’s expectation of 30-day volatility of the dollar/euro
exchange rate by applying the VIX methodology to options on the
euro ETF.

Against the yen, the dollar fell to 2-1/2-week lows at
82.53 (JPY=EBS: ). It was last at 82.70, down 1.4 percent.
(Editing by James Dalgleish)

FOREX-Dollar falters on U.S. jobs but losses seen capped