FOREX-Dollar gains as short positions cut before Fed

* Dollar rises to 2-week high vs yen, 1-wk high vs euro

* Fed eyes gradual bond buying several hundred bln dlrs-WSJ

* ECB holds 3-month tender; bank tensions eyed

* Aussie drops after tame inflation data

(Releads, adds quotes, updates prices, changes dateline prvs
TOKYO)

By Tamawa Desai

LONDON, Oct 27 (BestGrowthStock) – The dollar rose broadly on
Wednesday as speculation the U.S. Federal Reserve would take a
gradualist approach to more quantitative easing next week
prompted players to liquidate some short dollar positions.

The dollar edged up to a two-week high against the yen and
an one-week peak versus the euro. The dollar index (Read more about the global trade. ), which tracks
the performance of the greenback versus a basket of six other
major currencies, was up 0.5 percent at 78.11 (.DXY: ).

The Wall Street Journal said the Fed would make bond
purchases worth a few hundred billion dollars over several
months, which compared with investors’ base-case scenario for an
initial commitment to buy at least $500 billion. [ID:nTOE69Q02H]

In a Reuters survey earlier this month, U.S. primary
dealers’ projections for the size of the Fed’s expected
quantitative easing at its next policy meeting on Nov. 2-3 had
ranged from $500 billion to $1.5 trillion. [FED/R]

“Expectations for the amount of QE have been lowered, which
is supporting the dollar and the euro is retreating a bit,” said
Roberto Mialich, currency strategist at Unicredit in Milan.

“But there is not great downside potential (for the euro) as
the Fed is adopting a looser monetary policy while the direction
of the European Central Bank seems to be the opposite,” he
added.

By 0731 GMT, the euro fell (Read more about the trembling euro. ) 0.4 percent to $1.3798 (EUR=: ),
after falling to a $1.3772 as a break though an option barrier
at $1.3800 accelerated selling. Stop-loss sell orders for the
single currency were seen below $1.3770 and $1.3750.

Traders said, however, there were likely to be bids for the
euro at around $1.3750/60. One major support may be at around
$1.3787, a 76.4 percent retracement of its latest rebound from
the low around $1.37 to Monday’s high.

Traders will also keep an eye on any renewed money market
tensions as the European Central Bank offers three-month funding
to banks, the first such operation since April to not simply
issue money at a flat rate. A Reuters poll found traders
expected a 33 billion euro take-up of three-month money, with
ECB loans worth 23 billion euros maturing. [ECB/REFI]

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

PDF on G20’s uneasy truce: http://r.reuters.com/nan99p

FX column on the Fed: [ID:nLDE69L1EY]
^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^>

The dollar was also supported by a rise in U.S. Treasury
yields, with the benchmark 10-year yield (US10YT=RR: ) rising to
one-month highs above 2.6 percent on Tuesday.

Against the yen, the dollar rose as high as 81.96 yen
(JPY=: ), pulling further away from a 15-year low of 80.41 yen
struck earlier this week on trading platform EBS.

But gains could be limited as “there are quite a lot of
dollar-selling orders from Japanese exporters at the 82 yen
level,” one Japanese trader said.

Others said a fair amount of overnight 82.00 yen strikes
were bought on Tuesday, suggesting that area could be sticky
into Wednesday’s 1400 GMT cut — when many trades expire.
Option-related stops are then highlighted at 82.15 yen.

The Australian dollar fell 1.5 percent to $0.9702 (AUD=D4: ),
after Australian consumer prices rose by less than expected last
quarter, reducing chances of an interest rate rise next week.

The Norwegian central bank will hold a policy meeting on
Wednesday where markets expect no change in policy but will
focus on the central bank’s rate path.
(Additional reporting by Masayuki Kitano in Tokyo; editing by
Patrick Graham)

FOREX-Dollar gains as short positions cut before Fed