FOREX-Dollar gets reprieve but may risk more downside

* Profit-taking and stops help lend dollar support

* But weakness likely to persist on Fed easing expectations

* DXY may test trendline near 76.00, then 2009 low of 74.17

* 76.4 pct retrace of euro’s 2009-2010 drop lies at $1.4374

By Masayuki Kitano

TOKYO, Oct 15 (BestGrowthStock) – The dollar steadied on Friday, a
day after a turbulent session in which it hit a 10-month low, as
investors trimmed heavily-extended short positions, but players
said it was premature to think there had been any sea change.

The Australian dollar (AUD=D4: ) dropped, backing further off a
28-year peak after falling short of U.S. dollar parity the day
before, and the euro faltered after hitting its highest in more
than eight months against the greenback on Thursday.

A trend of dollar weakness was seen as likely to persist on
the back of market expectations for the Federal Reserve to unveil
additional quantitative easing next month.

The dollar index (Read more about the global trade. ) (=USD: )(.DXY: ), which hit a 10-month low on
Thursday at 76.259, has support at about 76.00, roughly where a
trendline from lows in July 2008 and November 2009 now lies. If
it breaks that, the next target is November’s low at 74.17.

Still, the greenback was stabilising ahead of a speech by
U.S. Federal Reserve Chairman Ben Bernanke at 1215 GMT.


“Currencies: Race to the Bottom” PDF:


“Market players who had piled up one-sided positions such as
selling the dollar, on the back of a trend toward U.S. monetary
easing are probably locking in some profits,” said a trader for a
Japanese bank.

“I think this is still in the realm of position adjustment,”
he added.

The dollar index (Read more about the global trade. ) was flat at 76.665.


A sustained dollar rebound seems unlikely at this point, said
Koji Fukaya, chief currency strategist at Credit Suisse
Securities in Tokyo.

“I think that might be pretty hard, at least until the FOMC,”
he said, referring to the Fed’s policy meeting in November.

One factor that may temper the dollar’s decline, however, is
the fact that there has been a pretty hefty accumulation in short
dollar positions, Fukaya said.

The value of the dollar’s net short position held by currency
speculators rose to $30.5 billion in the week ended Oct. 5, the
largest bet against the dollar since at least June 2008, and
players will watch this week’s data to see if that has grown.

With markets convinced the Fed will take more quantitative
easing steps, Bernanke’s speech will be closely watched for clues
on how big those steps might be, how much bond-buying it might do
and whether it will announce a “shock and awe” programme or start
small. [ID:nN14141178]

Economists polled by Reuters expect the programme to be about
$500 billion, and if Bernanke doesn’t sound as dovish as people
expect, there is a risk the dollar might see more of a rebound.

The U.S. Treasury Department is also expected to issue a
report on currency practices of other countries on Friday. The
U.S. administration faces a tough call on whether to label China
a currency manipulator, a move many U.S. lawmakers say is overdue
but one that could throw a wrench into Sino-U.S. relations.

The euro fell (Read more about the trembling euro. ) 0.2 percent to $1.4057 (EUR=: ), retreating from
an eight-month peak of $1.4123 hit on Thursday. One trader cited
talk of weak stop loss sell orders down at $1.3990-4000.

It was testing resistance on weekly Ichimoku charts at
$1.4055, and a clear break above that level would be a bullish
signal. Upside targets include a late January high at $1.4195 and
then $1.4374, the 76.4 percent retracement of the euro’s slide
from its November 2009 peak down to a trough hit in June.

The Australian dollar eased 0.1 percent to $0.9926, moving
away from the previous day’s 28-year peak of $0.9994.

The dollar dipped 0.2 percent to 81.33 yen (JPY=: ). It hit a
15-year low of 80.88 yen on Thursday, only about 1 yen above its
record low of 79.75 yen set in April 1995.

“There’s always a chance (of revisiting the record low)
because the market likes to have a target and it might keep
pushing until it gets to that point,” said Gareth Berry, FX
strategist at UBS in Singapore.

“But if we get anywhere close to 80 the BOJ might be tempted
to come in – but that’s their decision and there are political
considerations to take into account, with the G20 around the
corner,” Berry said.

Japanese Finance Minister Yoshihiko Noda said on Friday that
Japan will continue to take decisive steps on currencies if
necessary to curb excessive moves in the foreign exchange market (Read more about international currency trading. ).

He said, in response to a question, that Japan would take
necessary steps regardless of meetings of Group of Seven or G20
nations. [ID:nTKF107046]

Group of 20 finance ministers meet in South Korea later in
October, which will be followed by a G20 summit next month.
(Additional reporting by Koh Gui Qing in Sydney, Hideyuki Sano
and Charlotte Cooper in Tokyo and Eric Burroughs in Hong Kong;
contribution by Reuters FX analyst Rick Lloyd in Singapore;
Editing by Joseph Radford)

FOREX-Dollar gets reprieve but may risk more downside