FOREX-Dollar up with yields, euro down as Spain on review

* Dollar gains ground as Treasury yields soar

* Euro falls to $1.3300 after Moody’s puts Spain on review

By Ian Chua and Chikafumi Hodo

SYDNEY/TOKYO, Dec 15 (BestGrowthStock) – The dollar rose against
other major currencies on Wednesday after upbeat U.S. economic
data helped to send U.S. Treasury yields higher, while the euro
fell after credit rating agency Moody’s said it may downgrade
Spain’s debt.

Moody’s put Spain’s AA1 ratings on review for a possible
downgrade, citing concerns about its mounting debt and 2011
funding needs, sending the euro down to test support just below
$1.3300 (EUR=: ). [ID:nL3E6NF0D8]

The euro shed 0.5 percent on the day to $1.3309 and headed
down to 1.2808 Swiss francs (EURCHF=R: ), within range of a record
low of 1.2765 francs set in September.

Robert Ryan, FX strategist at BNP Paribas in Singapore, said
the threat of a downgrade was not really a surprise given Spain’s
10-year yield spread was about 250 basis points over Bunds.

“But this just focuses attention back on Spain,” he said.

Ireland’s parliament is due to vote on an 85 billion euro
($114 billion) EU/IMF rescue package on Wednesday, which is
expected to get through the lower chamber.

The government then hopes to tap the external funding early
next year, but the market is not convinced that the euro zone’s
debt troubles are over. [ID:nLDE6BD1W1]

Chartists said if the euro could hold above support in a band
above $1.3280, it could retest $1.3500, its three-week high set
on Tuesday. But if that support band gives way, the euro is
likely to slip into a $1.3165-1.3500 range before eventually
breaking down to test its November low at $1.2969.


The dollar gained 0.4 percent against a basket of major
currencies to 79.72 (=USD: )(.DXY: ), having climbed off a three-week
low plumbed on Tuesday.

The 10-year Treasury yield flew to a seven-month high just
above 3.50 percent in Asian trade on Wednesday, extending a move
that started on Tuesday after U.S. retail sales rose for a fifth
straight month in November, prompting economists to ratchet up
fourth-quarter growth forecasts. [ID:nN14261708]

Despite improving growth prospects, the Federal Reserve
reaffirmed its commitment to buy $600 billion in bonds, a move
that could add fuel to the economic bonfire in coming months.

The rise in yields helped the dollar to bounce on Tuesday to
reverse losses on the yen.

Although the 10-year yield retreated to 3.414 percent later
on Wednesday, the dollar remained up near the 84.00 yen
resistance it has tussled with all month.

“A sharp rise in U.S. Treasury yields is spurring
short-covering in the dollar,” said Shuichi Kanehira, head of FX
spot trading at Mizuho Corporate Bank.

“I’m not sure whether this will be a long-term uptrend, but
in the short term the dollar could advance further.”

The dollar rose 0.2 percent to 83.85 yen (JPY=: ), helped by
talk of demand at the Tokyo fix but with resistance expected
ahead of 84.50 yen, a level it has not seen since late September.

Options barriers were expected up at that level, with
defensive selling expected on the way up. Support was pegged
around 82.50.

Peter Frank, strategist at Societe Generale, said dollar/yen
looked at risk of an upward lurch from widening U.S./Japan rate
spreads, particularly if there was more upbeat U.S. data ahead.

U.S. data on Wednesday includes November consumer prices.

“Positioning is also a risk for the yen with the latest IMM
data showing the speculative market is still clinging on to large
net long yen positions,” Frank said.

The low-yielding yen fell to its weakest in seven months
against the higher-yielding Australian dollar on Tuesday at 83.69
yen (AUDJPY=R: ), but the Aussie backed off the high on Wednesday
as it retreated following a test of parity with the U.S. dollar.

Mounting optimism about the U.S. recovery and recent solid
growth data from China, coupled with the fact that Beijing has so
far refrained from lifting interest rates, have put commodity
currencies back in the limelight.

The Aussie was trading at $0.9922 (AUD=D4: ) after gaining