FOREX-Dollar gains as US economy shows strength, oil slumps

* Strong U.S. factory orders boost dollar

* Dollar rallies vs Canadian dollar as oil prices slide

* No strong case to buy euros, hedge fund manager says

* Aussie dollar sinks as floods weigh
(Recasts, updates prices, adds comment)

By Julie Haviv

NEW YORK, Jan 4 (BestGrowthStock) – The dollar rebounded from
three-week lows against the euro on Tuesday as unexpectedly
strong U.S. economic data bolstered the greenback’s appeal,
with more gains seen likely given concerns over the euro area’s
bond issuance.

Data showed new orders received by U.S. factories rose in
November and orders excluding transportation recorded their
largest gain in eight months, fueling dollar buying versus the
euro. For details, see [ID:nN03158039]

Traders also said the lapse of the New York expiry in
euro/dollar, where there are reportedly option-related bids in
the $1.3400 region, contributed to the euro zone single
currency’s retreat. Those vanilla bids in the euro had kept the
euro partly supported throughout the Asian and London session.

“There’s always a bearish case for the euro because of the
debt situation. That will keep coming back so it’s unclear to
me … the upside for owning the euro in a big way,” said Aston
Chan, portfolio manager at global macro hedge fund GLC in
London. GLC has assets under management of $1.2 billion.

In early afternoon New York trading, the euro (EUR=EBS: ) was
down 0.3 percent from late on Monday at $1.3323 after hitting
three-week peaks at $1.3435. More support lies at $1.3280 and
$1.3250, Monday’s lows, traders said.

A fall below key support at $1.3250 could prompt more
selling in the euro as traders target the 200-day moving
average just below $1.3100.

Meanwhile, a nearly 3 percent drop in crude oil prices,
promoted the dollar to outperform commodity-sensitive
currencies. [ID:nN04149624]

The greenback rose to a session peak of 1.0033 Canadian
dollars (CAD=: ), according to Reuters data. It was last at
1.0002 Canadian dollars, up about 0.7 percent on the day.

The Canadian dollar on Dec. 31 traded and closed through
parity. Its recent move to parity has been on the back of
stronger commodity prices.

Camilla Sutton, chief currency strategist at Scotia Capital
in Toronto, said they expect USDCAD to hover either side of
parity in the near-term, but that it is sustainable through
parity and will close the year at lower levels than it is
trading currently.

“We expect today’s USDCAD range to fall between 0.9889 and
0.9980” recent congestion, she wrote.

Against the yen, the euro (EURJPY=R: ) was 0.05 percent lower
on the day at 109.08.

Meanwhile, market participants mulled minutes of the
Federal Open Market Committee’s Dec. 14 meeting.

Federal Reserve officials in December felt the
U.S. economic recovery was still weak enough to warrant
monetary support despite growing signs of strength, the minutes
released on Tuesday showed. For details, see [ID:nWAL4CE7W1]

Volatility in major currencies is still elevated,
suggesting investors in the options market remained nervous
about global growth prospects. For instance, one-month
euro/dollar implied volatility on Monday hit a one-month high
at 14.00 percent (EUR1MO=: ), although on Tuesday, it slipped a
bit to 13.10.

At the same time, back-end vols in euro/dollar have
remained firm and continue to trade with a premium over the
short end of the curve.

“Our base case remains focused on the risk of a sharp fall
in the euro over the coming year, reflecting the ongoing fiscal
struggles in the euro zone periphery and the need for the
exchange rate to provide some offset for the overall adjustment
process,” wrote TD Securities in a research note.

In the next two months an estimated 150-200 billion euros
of government bonds are scheduled to be issued by euro zone
countries, some of whom are struggling with rising budget
deficits and higher borrowing costs. That should further cloud
prospects for the euro.

TD added that euro/dollar gains are liable to remain
limited to the $1.3450 area in the short run, not far from the
highs seen in December.

Meanwhile, currency investors remained riveted on the
Australian dollar, which fell as severe floods in north-east
Australia are expected to impact coal production, a major
contributor to its economy.

The Aussie dollar fell 1.1 percent to US$1.0054 (AUD=D4: ),
retreating from a 28-year peak around US$1.0257 set on Friday.
Traders said funds sold Aussie for euros, taking profits on
long Aussie positions taken in the run-up to the end of 2010.
(Additional reporting by Gertrude Chavez-Dreyfuss)

FOREX-Dollar gains as US economy shows strength, oil slumps