FOREX-Euro at 2-mth high; $1.30 barriers in sight

* Euro helped by rising European money market rates

* Large $1.30 option barriers in sight, slowing gains

* Dollar index slips to fresh 2-mth lows

(Changes lead, adds quote, detail)

By Neal Armstrong

LONDON, July 16 (BestGrowthStock) – The euro touched a fresh
two-month high versus a broadly weaker dollar on Friday as
rising European money market rates continued to underpin the
shared currency, bringing large option barriers into play.

The dollar stayed pressured, slipping to two-month lows
versus a currency basket, after a series of U.S. data this week
underscored a slackening in the economy’s recovery.

“The euro’s going up on light volume, there’s not much
liquidity today but European yields are rising and that’s
helping to drag the euro higher,” said Paul Mackel, director of
currency strategy at HSBC.

The recent rise in euro-priced bank-to-bank lending rates
picked up pace on Friday, pushed on by the sharp drop in spare
European Central Bank cash in money markets. [ID:nEAP000481]

At 0931GMT, the euro was trading up around 0.2 percent at
$1.2970, close to an earlier 2-month high of $1.2983. Traders
said large option barriers at $1.3000 were being defended,
slowing the euro’s gains.

Technical analysts said the picture for the euro had been
improved by Thursday’s close above the Ichimoku cloud at $1.2785
for the first time since December.

A break above $1.3000 would bring resistance at $1.3125 into
play, the 38.2 percent retracement of the euro’s fall from
November to June.

The euro has risen more than 9 percent from a four-year low
of $1.1875 hit on June 7 after smooth government debt auctions
in Greece, Portugal and Spain eased concerns about the euro
zone’s sovereign debt problems.

Analysts said further weakening in the dollar versus other
major currencies, particularly the euro, could be limited.

“The dollar’s adjustment can be justified as the Fed may
have to do more easing, but in the longer term it could start to
benefit from safe-haven flows,” said Jane Foley, research
director at Forex.com.

“If the Fed isn’t going to hike, it’s hard to see the ECB
hiking first,” she added.

Market participants closely watched whether the dollar
could hold above its July 1 low of 86.96 yen, its lowest since
early December, as a fall below that level could boost the
possibility of the greenback dropping to 84.82 yen, a 14-year
low reached last November.

Last December the Bank of Japan called an emergency meeting
soon after the dollar slid to the 14-year trough, and decided to
pump 10 trillion yen ($114.5 billion) in three-month funds into
the banking system.

The yen’s latest rise has brought it to levels that could
cause pain to Japanese exporters if its gains are sustained,
with the BOJ’s tankan survey showing the average forecast for
the dollar/yen rate in the year to next March among large
manufacturers is 90.18 yen.

Traders said there was talk of stop-loss dollar orders at
levels below 87.00 yen.

The dollar was down 0.4 percent at 87.06 yen (JPY=: ) after
falling as low as 86.97 yen on EBS.

The dollar index (Read more about the global trade. ) dipped 0.4 percent to a 2-month low of
82.242. Earlier this month, the dollar index (Read more about the global trade. ) broke below the
daily Ichimoku cloud, suggesting more losses may be in store.

The New Zealand dollar dropped after inflation data was
weaker than expectations. [ID:nSGE66E018].

The kiwi (NZD=D4: ) fell 1.8 percent on the day to $0.7145,
having stood at around $0.7270 before the data

(Editing by Ruth Pitchford)

FOREX-Euro at 2-mth high; $1.30 barriers in sight