FOREX-Dollar presses higher on yield gain, euro sags

* Euro sags as important supports draw nearer

* Dollar supported by yield rise, tax plan impact on growth

* Dollar index pushes back above 80, breaches 100-day MA

By Charlotte Cooper and Masayuki Kitano

TOKYO/SINGAPORE, Dec 8 (BestGrowthStock) – The dollar climbed on
Wednesday, having already powered up across the board the day
before on the back of a spike in U.S. bond yields, while the euro
slipped towards some significant support levels.

The greenback had risen sharply on Tuesday, gaining 1 percent
on the yen and rising against the likes of the Australian dollar
after U.S. Treasury yields surged on a proposed extension in U.S.
tax cuts, which fuelled concerns about inflation and the cost of
the massive debt burden.

The dollar pressed home its advantage in Asia, testing
resistance from its 100-day moving average up near 84.00 yen
(JPY=: ) and pushing the euro within range of support levels just
above and below $1.3200 (EUR=: ).

The rise in yields is broadly seen as dollar supportive
near-term, despite the fiscal impact of the tax plan, while the
U.S. economy stands to get a boost from the deal, which could
lift growth next year and also lessen the case for bigger
monetary stimulus by the Federal Reserve.

“It could be that the market is somewhat buoyed for now by
the fact that the U.S. growth outlook for 2011 at least will
probably be a lot better than what we all thought a couple of
weeks ago,” said Sue Trinh, senior FX strategist at RBC.


For analysis on US tax deal [ID:nN07277043]

Full coverage of tax and deficit debates [ID:nN06200548]

Reuters Breakingviews column [ID:nN07158253]

Graphic: Tax proposal: record deficit, more growth

For PDF on yuan market

For PDF on Asia corporate sentiment


David Forrester, G10 FX strategist for Barclays Capital in
Singapore, said the dollar’s outlook appeared well-supported.

“The Obama agreement to extend Bush tax cuts, that places
less of an onus on monetary policy to stimulate the U.S.
economy,” he said.

The correlation between the dollar and long-term Treasury
yields has declined recently, Forrester said, which could be due
in part to position squeezing, or long liquidation, in the
Treasury market and thinning volumes as the year-end draws near.

Still, the yield jump makes the dollar more attractive to
those chasing higher yields and cuts the yield advantage of
currencies such as the Australian dollar. The Australia/U.S.
10-year yield spread narrowed to about 240 basis points, well off
a November high of 275.

The Australian dollar fell 0.3 percent from late U.S. levels
to $0.9793 (AUD=D4: ), backing further off parity with the
greenback that it saw in November.

“For the U.S. dollar, how risk responds will be less
important than whether other competing government nominal and
real yields (notably Bunds and JGBs) keep up with Treasuries,”
said Alan Ruskin, global head of currency strategy at Deutsche

“If 10-year U.S. yields consolidate in a 3 percent to 3.25
percent range, I could see the dollar and euro sharing the role
of financing currencies, as the other side of a muted long
emerging/commodity trade,” he wrote in a note.

The dollar index (Read more about the global trade. ) (=USD: )(.DXY: ), a gauge of its performance
against a basket of major currencies, rose 0.5 percent from late
U.S. levels to 80.238, rising above its 100-day moving average at
79.981, which if sustained would be a bullish signal.

The greenback, which made its biggest one-day gain against
the yen in nearly three months on Tuesday, rose a further 0.4
percent to 83.84 yen, nearing an 84.00-84.40 resistance band that
has capped its recent rally.

Traders said Japanese accounts had been buying dollars for
yen as the U.S. yield spread over Japanese bonds widened, making
dollar returns more attractive. If U.S. yields stayed elevated
into the year-end it would be likely to support the dollar
against the yen.

The euro fell (Read more about the trembling euro. ) 0.3 percent $1.3214 (EUR=: ), nearing the bottom
of its recent $1.3200-3450 range. Its failure this week and last
to sustain moves above $1.3400 suggested it might probe lower,
with a sustained break of $1.3180 support opening the way for a
test of $1.3060/50.

One trader said there was also talk of U.S. corporate selling
interest at $1.3400 and above, which might limit euro gains as

Ireland moved a step closer to securing bailout funds after
passing the first in a series of votes on its toughest budget on
record, but traders said investors were still likely to sell the
euro on any bounce given broader worries about the European
Union’s ability to keep debt problems from spreading.

Other risk and commodity-linked majors such as the Canadian
and New Zealand dollars also fell as gold slid.
(Additional reporting by Ian Chua in Sydney, Yoko Matsudaira in
Tokyo, and Reuters FX analysts Rick Lloyd in Singapore and
Krishna Kumar in Sydney; Editing by Michael Watson)

FOREX-Dollar presses higher on yield gain, euro sags