FOREX-Dollar springs back to life after U.S. payrolls

* Strong jobs data boost dollar, stave off selling

* Pimco FX manager says euro may struggle

* Euro/dollar sentiment in options market darkens
(Adds fresh quotes, risk reversal signals, updates prices)

By Gertrude Chavez-Dreyfuss

NEW YORK, Nov 5 (BestGrowthStock) – The dollar rallied on Friday as
unexpectedly strong U.S. job gains in October suggested the
economy may well be on a stable road to recovery.

The nonfarm payrolls data came two days after the Federal
Reserve committed to inject $600 billion to boost the flagging
economy and gave the greenback temporary relief from a broad

The strong jobs data left some investors open to the
possibility that the dollar may have carved a bottom against
the euro, despite the prospect of more quantitative easing.

The Labor Department reported the U.S. economy added
151,000 jobs in October, blowing past expectations for a 60,000
rise and marking the fastest pace of hiring since April. See

“Given that we have seen improving numbers since June and
combine that with better business sentiment numbers, we’re
having indications that the economy is turning in the right
direction. The U.S. is regaining some traction,” said Thomas
Kressin, senior vice president and lead portfolio manager of
Pimco’s Global Investor Series FX Strategy Fund in Munich,

The currency fund has assets under management of about 100
million euros (roughly $140 million).

In midday trading, the euro was down 1.1 percent at
$1.4035, a day after hitting a 9-1/2-month high of $1.4283. It
earlier fell to a session low at $1.4027(EUR=EBS: ), according to
EBS data, in the wake of the jobs data..

Market participants had been selling the euro anyway as
concerns over Ireland’s austerity budget prompted a widening in
peripheral euro zone bond spreads. The premium investors demand
to hold 10-year Irish government bonds rather than the
perceived safety of German benchmarks rose to a euro lifetime
high after Dublin proposed a budget that some traders said was
“unrealistic.” [ID:nLDE6A40HF]


“I have a difficult time believing that the dollar will
continue to underperform vis-a-vis the developed world,
especially the euro, given the problems we have in the euro
zone,” said Pimco’s Kressin. “It’s just a matter of time before
the market refocuses on the domestic issues in the region.”

Kressin added that the quantitative-easing theme has been
played out in the market the last several months, and the
dollar would need a new driver for it to weaken further. “It’s
tough to see that right now,” he said.

Traders said stop-losses in the euro were hit all the way
down while a surprise drop in German manufacturing orders also
dented euro sentiment. [ID:nLDE6A40WR]

Investors in the options markets have also turned
increasingly bearish on the euro following the jobs report.

The euro/dollar risk reversal, a barometer of currency
sentiment, has been indicating a decline in the curve or a
growing negative view on the pair the last few weeks. But the
euro’s “put” bias deepened on Friday.

Euro puts are being traded at a mid-market of -1.125 vols
(EUR1MRR=GFI: ), according to GFI data, with bids at -1.50. A
week ago, the mid-market level was at -0.925.

Some strategists, however, do not expect the euro to fall
significantly versus the dollar even with sovereign debt
concerns in the euro zone and the robust U.S. payrolls report.

“The FX reaction is remarkable for the initial negative
euro/dollar response, but this is not seen leading to a serious
challenge of key downside levels,” said Alan Ruskin, global
head of currency strategy at Deutsche Bank.

“We need a string of these kinds of numbers before it is
realistic to flirt with the Fed terminating the QE2 exercise
before the Q2 2011 ‘due date.'”

The dollar rose 0.7 percent against the yen to 81.29
(JPY=EBS: ), not far from session highs at 81.48. Traders cited
talk of huge stop-loss buy orders above 82.00. On previous runs
to that level, the currency pair had faced heavy selling from
Japanese corporates and U.S. institutional funds.

The Bank of Japan earlier concluded a policy review without
easing further. The yen firmed slightly after the announcement
on disappointment that the central bank had not unveiled any
expansion of its asset buying plan in response to that of the

The dollar was up around 0.9 percent versus a currency
basket (.DXY: ) at 76.527, bouncing from an 11-month low touched
on Thursday of 75.631.
(Editing by Leslie Adler)

FOREX-Dollar springs back to life after U.S. payrolls