FOREX-Dollar settles after whipsaw moves, franc shines

* Dollar recovers from selloff as U.S. yields spike

* Moves exaggerated by very thin year-end conditions

* Swiss franc near record high vs dollar, euro

* Dlr/yen off 6-week low but looks vulnerable on chart

By Hideyuki Sano

TOKYO, Dec 29 (BestGrowthStock) – The dollar found a firmer footing
on Wednesday after a sharp reversal against the euro the previous
day in whipsaw action exaggerated by thin year-end flows.

Partly due to the erratic nature of the market, the Swiss
franc held near a record high against the euro and the dollar as
investors sought refuge from euro zone debt, while the dollar
threatened to break below a familiar range against the yen.

“The market is not driven by factors, but the thin conditions
mean there could be more volatile moves,” said a trader at a
Japanese bank.

The dollar index (Read more about the global trade. ), which tracks the greenback’s performance
against a basket of major currencies, stood at 80.293 (.DXY: )
(=USD: ), little changed on the day after having bounced off an
overnight low of 79.596.

The turn-around came as U.S. Treasury yields rose across the
board, with the benchmark 10-year issue gaining a hefty 16 basis
points to reach just shy of 3.50 percent as dealers sought a
bigger concession to take this week’s sales of government debt.

The higher yields helped make the dollar more attractive for
investors chasing better returns.

“Probably U.S. dollar strength will prevail but I’m not
laying a lot of positioning on it over this period because the
market is very thin,” said a trader at a U.S. investment bank in
Sydney.

“A lot of positioning has been flushed out after last night,
so I don’t expect much action today. There’s nothing around in
the order books at the moment.”

The euro stayed flat at $1.3125 (EUR=: ) after a whipsaw move
on Tuesday that took it to $1.3275, its best level since Dec. 17.

Although it slipped from that high, the euro held above its
200-day moving average, now at $1.3086, which has served as a
strong support for more than a week.

But the euro remained near a record low against Swiss franc,
a safe-haven currency that has attracted funds escaping euro zone
debts on worries that some euro zone countries could face severe
financing problems.

The euro fetched 1.2495 francs (EURCHF=R: ), barely above a
record low of 1.2440 franc set a week ago.

The franc also held not far from a record high against the
dollar. The U.S. currency traded at $0.9520 (CHF=: ) after hitting
an all-time low around $0.9437 on Tuesday.

The yen, which tends to be favoured when investors grow
risk-averse, was also supported after having hit a 6-week high
against the dollar and a near two-year high against the British
pound on Tuesday.

On Wednesday, the dollar slipped 0.1 percent to 82.30 yen
(JPY=: ), off Tuesday’s low of 81.81 yen. But in a major bearish
sign, it dropped below the bottom of the daily ichimoku chart at
82.39.

Tohru Sasaki, chief FX strategist at JPMorgan Chase Bank,
said moves in the dollar/yen tend to gather momentum towards new
year from Christmas.

In the past three years, the rate has moved 3.5 percent on
average in the first three days of year, and 2.0 percent in the
last three trading days, compared to 0.7 percent in the three
days around the Christmas holidays, he said.

If the pair falls in the coming days, and the size of the
fall matches the average of the past three years, that would see
the dollar well below its postwar low of 79.75 yen by next week.

Meanwhile commodity currencies also maintained momentum.

The Aussie stayed within sight of retesting a 28-year peak of
$1.0182 set in November, standing at $1.0100 (AUD=D4: ). It rose as
high as $1.0153 on Tuesday.

But depending on how the Aussie performs from here, a
double-top could be in the making, traders cautioned.

“We’ve seen some corporate selling of the Aussie above $1.01.
It will probably be a bit heavy on any rally but I really don’t
see much happening until liquidity picks up in January,” a trader
in Sydney said.

The Aussie is up around 14 percent on the U.S. dollar so far
this year, and has surged 23 percent against the euro.

However, some analysts doubt the Aussie can perform as well
next year.

China raised interest rates on Saturday for the second time
in just over two months to fight stubbornly high inflation, and
analysts expect more to come in 2011. [ID:nTOE6BO010]

That helped knock down Shanghai shares (.SSEC: ) to a
three-month low, but commodities markets have so far taken the
Chinese rate hike in their stride.

Oil hit a two-year high of $91.88 this week and was last at
$91.49 (CLc1: ), not far off that high, while copper has been
setting a fresh record every day.

Still, when markets get back to normal from the holiday mode,
that correlation may return to normal too, possibly weighing on
the Aussie, some analysts said.
(Additional reporting by Ian Chua in Sydney and Reuters FX
analyst Rick Lloyd in Singapore; Editing by Michael Watson)

FOREX-Dollar settles after whipsaw moves, franc shines