FOREX-Euro firms on euro zone rate hike expectations

* Euro firmer as Trichet supports ECB rate hike expectations

* Euro supported above $1.40 but resistance at $1.4250

* Dollar/yen steady, offers seen around 82.00 yen

(Updates prices; changes byline, dateline; previous TOKYO)

By Jessica Mortimer

LONDON, March 29 (Reuters) – The euro rose against the
dollar on Tuesday after comments by the head of the European
Central Bank reinforced expectations for a rate rise next month
and kept the single currency in its recent range above $1.40.

The euro had dipped on Monday after hawkish U.S. policymaker
comments lifted the dollar, but ECB President Jean-Claude
Trichet’s comments that inflation is “durably” above the ECB’s
target kept it above support at $1.40. [ID:nLDE72R20A]

The $1.40 support level is drawn from a trendline from the
low below $1.30 hit in January, while the euro’s 21-day moving
average stands just above that level, at around $1.4006.

The currency stayed comfortably below last week’s high of
$1.4249, however, and options barrier resistance at $1.4250.

Traders cited support from sovereign bids around $1.4080 and
more around $1.4050, but reported offers of $1.4130-5 and just
above were expected to keep euro/dollar trapped within a range.

Investors continued to focus on the prospect of higher rates
and shrugged off the euro zone debt crisis, despite rising
concerns about Portugal’s ability to finance itself as the
country prepares for a snap election. [ID:nLDE72R1RI]

“Euro/dollar is trading at the moment on two factors —
interest rate differentials and the technical configuration,”
said Niels Christensen, currency strategist at Nordea in
Copenhagen.

“The euro failed to break below $1.40 yesterday, and last
week it disappointed on the upside, failing to test the November
highs (at $1.4283), so it is likely to stay in a $1.40-$1.42
range”.

He said trade is likely to be subdued heading into month-end
and ahead of key U.S. non-farm payrolls data on Friday.

The euro (EUR=: Quote, Profile, Research) was up 0.3 percent at $1.4130, comfortably
above a low of $1.4021 hit on Monday. Traders said an options
barrier at $1.4250 was expected to be heavily defended, but a
break of this would lead to a test of the November high, which
would mark its strongest since January 2010.

The euro also rose 0.4 percent against the yen (EURJPY=: Quote, Profile, Research) to
115.63 yen, its highest level since Group of Seven central banks
intervened jointly at Japan’s request to curb appreciation in
the yen following a devastating earthquake.

Reflecting rising rate hike expectations, key euro-priced
interbank lending rates rose to a 22-month high on Monday with
the level of excess liquidity in money markets falling.
[ID:nLDE72R0W1]

DOLLAR/YEN HEMMED

The dollar was steady at 81.69 yen (JPY=: Quote, Profile, Research), with gains capped
by reported offers ahead of 82.00 yen, traders said. They added
there were stop loss orders above 82.00 yen and options expiries
due at 81.00 and 82.00 yen which could also help keep it hemmed
in a range.

A customer dealer for a major Japanese bank in Tokyo earlier
reported a significant amount of dollar offers, mainly from
Japanese exporters, at and above 82 yen — the March 18 high hit
after the coordinated G7 intervention.

He said the dollar is vulnerable to a fall towards 80.80
yen, though most traders and analysts believe falls will be
limited due to fears of possible further intervention.

The dollar index (.DXY: Quote, Profile, Research), which tracks the U.S. currency’s
performance against a basket of major currencies, was down 0.2
percent on the day at 75.987.

“A recent rise in oil prices is also raising expectations
that oil producers will diversify away from the dollar, which
would also benefit the euro,” said Masafumi Yamamoto, chief
currency strategist at Barclays Capital.
(Additional reporting by Natsuko Waki in Tokyo; Editing by
Catherine Evans)

FOREX-Euro firms on euro zone rate hike expectations