FOREX-ECB bond buying talk spurs euro rally vs dollar

* Trichet gives no guidance on bond buying

* Talk of ECB bond buying helps lift euro

* Upcoming U.S. payrolls data could sway currencies
(Updates prices, adds comments, changes byline)

By Julie Haviv

NEW YORK, Dec 2 (BestGrowthStock) – The euro rose on Thursday on
market talk the European Central Bank was buying bonds, but
lingering concerns about the outlook for peripheral euro zone
countries should continue to put pressure on the currency.

Traders said the ECB was buying Portuguese and Irish debt,
but there was disappointment ECB President Jean-Claude Trichet
did not announce a more aggressive policy response to ease the
euro zone debt crisis. For details, see [ID:nLDE6B10I4]

While the euro’s fundamentals are the same following
Trichet’s remarks, most analysts said the currency’s 2-1/2
month low hit earlier this week would act as a strong support
level for now. Traders are now looking at the euro’s 100-day
moving average at $1.3325 as the next resistance level.

In tandem with the euro’s rise, the premium that investors
demand to buy Portuguese and Irish debt over German benchmarks
fell on Thursday, with traders saying the ECB had been buying
the two countries’ bonds. [ID:nLDE6B11M6]. That caused the euro
to recover from losses triggered after Trichet spoke.

Portuguese 10-year debt yield premiums over German
benchmarks hit a one-month low on the bond purchases reported
by traders. [ID:nLDE6B11QD]

“In times like this, we actually think the best thing to do
is not to chase short-term moves,” said Bob Sinche, global head
of currency strategy at RBS in Stamford, Connecticut.

“Euro/dollar was overdone to the topside on quantitative
easing part 2 and went overdone on the downside on fears of an
imminent euro zone crisis. I think we have come back to the
euro’s fundamental valuation, which in our view, is actually
$1.32-$1.33.”

Sinche said he wouldn’t be surprised if the euro ends the
week “somewhere north of the 200-day moving average and
somewhere south of the 100-day moving average” depending on the
the U.S. nonfarm payrolls report due on Friday.

With the ECB’s monthly meeting concluded, the focus in
markets shifted to U.S. data due on Friday on the labor market.
The government is expected to report that nonfarm payrolls rose
140,000 last month after increasing 151,000 in October,
according to a Reuters survey.

A stronger-than-expected reading would bode well for the
dollar.

The euro fell (Read more about the trembling euro. ) following Trichet’s comments on
disappointment the ECB made no commitment to undertake a new
bond-buying plan. Instead the ECB extended nonstandard
provisions, committing to provide unlimited one-week, one-month
and three-month funding for vulnerable euro zone banks until at
least April, a move viewed by the market as too soft. For
Trichet’s remarks see [ID:nLDE68T0MG]

SOME UNSURPRISED BY ECB

In afternoon New York trading, the euro was up 0.5 percent
at $1.3204, with session lows at $1.3060 (EUR=EBS: ). Traders
cited stops right above $1.3225.

Overall, the intraday bias in euro/dollar remains neutral
for now as the currency consolidates from lows at $1.2969
earlier this week, traders said. Another rise cannot be ruled
out, according to ActionForex.com analysts, at the hourly
55-day exponential moving average around $1.3279. But they said
strong resistance is expected at $1.3447.

Some analysts were not surprised the ECB did not announce
any new bond buying program as many members of the bank have
opposed such action.

“So unless the now highly politicized situation is
resolved, the euro is likely to continue to be under pressure
in the near term, which is our expectation because a lack of
consensus in the ECB and EU would make credible and substantial
responses hard to come by,” said Aston Chan, portfolio manager
at global macro hedge fund GLC in London. GLC has assets under
management of around $1.2 billion.

The ECB has been under pressure to soothe markets after a
bailout plan for Ireland stoked speculation other euro zone
nations struggling to repay debts may also seek help from the
European community.

The dollar was down 0.5 percent against the yen at 83.76
(JPY=: ), weighed down earlier by a rise in the latest U.S.
weekly jobless claims. [ID:nN02209260]
(Additional reporting by Gertrude Chavez-Dreyfuss; Editing by
Kenneth Barry)

FOREX-ECB bond buying talk spurs euro rally vs dollar