FOREX-Euro edges higher, but downtrend set to resume

* Aussie dips then steadies after China rates move

* Euro rebounds again from below 200-day moving average

* Speculators increase euro short positions – CFTC
(Adds IMM data, Updates prices)

By Wanfeng Zhou

NEW YORK, Dec 27 (BestGrowthStock) – The euro rose against the
dollar on Monday after clawing back above its 200-day moving
average, though sentiment on the single currency remained
bearish amid worries about Portuguese and Spanish debt.

Trading ranks were extremely thin. London was closed on
Monday and Tuesday for holidays and a blizzard in New York
limited activity, ensuring only minor price fluctuations.

The Australian currency earlier fell as low as $0.9987
(AUD=D4: ) after China’s interest rate hike on Saturday, though
it had climbed back to trade slightly higher on the day.

While fears that a euro zone debt crisis could spread have
pushed the euro below the 200-day moving average — $1.3087,
according to Reuters data — in five of the last six sessions,
it has rebounded swiftly each time. A drop below is usually
indicative of more losses.

“With no economic news, we’re focusing on these technical
factors, and that push above the 200-day average has been a
catalyst for the euro,” said Omer Esiner, strategist at
Commonwealth Foreign Exchange in Washington. “And with London
off and the blizzard in New York, things are very subdued.”

The euro (EUR=: ) last traded at $1.3156, up 0.3 percent on
the session. It hit a three-week low of $1.3055 on trading
platform EBS last week and the currency’s outlook is still
clouded by Spain and Portugal, which investors fear may have
trouble refinancing their debt in the new year.

Speculators also boosted their bets against the euro in the
latest week, data from the Commodity Futures Trading Commission
showed on Monday, suggesting sentiment remained bearish. The
data also showed an increase in long positions in the
safe-haven Swiss franc. For details, see [ID:nN27235421]

Softer economic data from some of the weaker euro zone
economies will also likely have a bigger impact on the euro
next year than in 2010, according to strategists at BNP
Paribas.

“So far, the market is betting on positive spillover being
seen from core Europe (Germany) to the periphery. However, with
China tightening monetary policy, German exports will no doubt
be affected,” they wrote to clients. “Going into year-end, we
favor euro/dollar breaking lower from its recent trading range
targeting the 1.2970” level.

HIGHER CHINESE RATES

Australia’s economy has benefited from strong Chinese
demand and markets fear Beijing’s attempts to dampen inflation
with higher interest rates could hurt domestic demand there.

But traders said earlier losses in the Australian dollar
had more to do with the timing of the hike than the move
itself.

“There was a kneejerk sell-off in the Aussie, but investors
knew this China move was coming eventually,” said Geoffrey Yu,
currency strategist at UBS. “Providing Chinese data holds up in
2011, the Aussie should stay supported.”

Danske Bank analysts said they expect three more Chinese
rate hikes in 2011, with all likely coming in the first half.

Against the yen (JPY=: ), the dollar was down 0.1 percent at
82.81, near the lower end of its recent 82.50-to-84.50 range.

A rally in U.S. bond yields earlier this month prompted
many traders to bet on a rise in the dollar, but as the dollar
was unable to extend gains, traders have been cutting long
positions, analysts said.

A correlation between the exchange rate and U.S. yields
started to weaken this month, with the dollar shedding 1 yen
last week even as the two-year Treasury yield rose by 5 basis
points. Traders, however, blamed illiquid, year-end
conditions.

UBS said gross trading flows involving the yen were less
than 30 percent of typical weekly volume last week, adding:
“what little we did see was heavily biased toward buyers.”

FOREX-Euro edges higher, but downtrend set to resume