FOREX-Euro holds huge gains; dollar looks for jobs

* Euro holds firm after explosive gains overnight

* ECB signals April rate hike, staggers markets

* Focus turns to U.S. non-farm payrolls data

By Ian Chua

SYDNEY, March 4 (Reuters) – The euro took a breather in its
explosive rally ahead of influential U.S. jobs data on Friday,
but the single currency is set to stay in demand after the
European Central Bank signalled it may raise interest rates as
early as next month.

While the ECB had been expected to step up its
anti-inflation rhetoric, nobody actually thought ECB President
Jean-Claude Trichet would explicitly say an interest rate rise
at the next meeting was possible.

“The market was unprepared for Trichet to lay the foundation
for an April rate hike,” said David Watt, strategist at RBC
Dominion Securities.

Euro interest rate swaps soared across the curve with the
two-year rate hitting 2.30 percent, highs not seen
since early 2009.

The euro jumped to its highest in about four months of
$1.3976 on trading platform EBS on Thursday and last traded at
$1.3956 , down 0.1 percent from late U.S. trade on
Thursday.

“We think the euro will remain strong in the next week or
two, possibly even testing…highs of $1.4280,” said Christopher
Gothard, head of FX for Brown Brothers Harriman in Hong Kong,
referring to the euro’s next major peak on charts, its early
November high of $1.4283.

“Trichet’s comments have bolstered rate hike expectations,
and even though we’re not certain the scenario of an April hike
will play out – Europe still has the fiscal debt issues and poor
growth in many areas – for the moment it’s providing support,”
Gothard added.

Against the yen, the common currency eased 0.2 percent to
114.94 yen , hovering near a four-month high of 115.18
yen hit on EBS on Thursday.

A trader at a Japanese bank said the euro could face some
pressure against the yen due to the potential for euro selling
by Japanese exporters above 115 yen.

Having taken out resistance around 114.01, the late January
high that had capped the euro in February, the single currency
now looked poised to test 115.68, the early October high, said
Watt at RBC Dominion Securities.

In a sign of its broad strength in the wake of Trichet’s
comments, the euro hit a 10-month high against the New Zealand
dollar of NZ$1.8935 on Friday and touched a five-week
high versus the Australian dollar near A$1.3800 .

The euro held steady against the Swiss franc at 1.3010 franc
after having surged 1.6 percent on Thursday for its
biggest one-day percentage gain since last September.

“We see scope for rates to go up significantly further this
year, beyond the hike now widely expected in April,” said
Kenneth Wattret, analyst at BNP Paribas.

While that could be supportive of the euro in the near-term,
there are worries that weaker peripheral euro zone countries
will suffer from tighter policy, which will then pressure the
single currency.

Strength in the euro kept the dollar stuck near a four-month
low against a basket of major currencies. The dollar index was
steady at 76.485 , hovering near Thursday’s trough of
76.385, which was its lowest since early November.

The dollar dipped 0.1 percent against the yen to 82.36 yen
, having rebounded after repeated tests of levels around
81.60 in the past few sessions failed to break new lows.

The dollar’s near-term direction hinges on U.S. non-farm
payrolls data due later on Friday. Analysts polled by Reuters
expect the report to show a rise of 185,000, following a tepid
36,000 increase previously.

“That will be good for the dollar and especially dollar/yen.
Markets are currently priced for no rate hikes in the U.S. until
2013. I think that (rate) call will start coming back in and
that will be positive for the dollar,” a trader at a U.S.
investment bank said.

(Additional reporting by Masayuki Kitano in Singapore and
Hideyuki Sano in Tokyo; Editing by Tomasz Janowski)