FOREX-Euro rallies from four-year low against the dollar

* Euro rallies from 4-year low against the dollar

* ECB’s Nowotny says euro in “normal range”

* Investors worry austerity plans will weaken growth
(Recasts, updates prices, adds detail; changes dateline,
previous LONDON and byline)

By Nick Olivari

NEW YORK, May 17 (BestGrowthStock) – The euro rallied against the
dollar on Monday on a rise in risk appetite after a U.S. report
showed strong demand for U.S. long-term securities and a flurry
of short covering by investors who had bet the currency would
fall further.

Earlier the euro fell (Read more about the trembling euro. ) to a four-year low against the dollar
on persistent concerns with euro zone sovereign debt and fears
that planned austerity measures will hurt growth in the region,
but its fortunes revived amid German bank euro buying.

A short cover is buying a security on which the bet had
been for further declines to prevent losses when it
unexpectedly rallies.

A Treasury Department report showing foreign investors set
a record for purchases of long-term U.S. securities in March,
snapping up $140.5 billion and shattering a previous peak seen
in 2007 [ID:nN17253180], added to the decline in risk aversion.

“The euro rose after TICs data injected a little bit of
risk appetite,” said Kathy Lien, director of currency research
at GFT in New York. “Short euro trading is over crowded and if
there is a reason for traders to adjust positions they do it.”

In early morning New York trade, the euro (EUR=: ) was around
$1.2405 against the dollar, up 0.4 percent on the day. Traders
said stops were hit as the euro moved back above $1.2330.

The euro has fallen more than 7 percent against the dollar
this month, and is about 14 percent lower for the year, making
it the worst-performing major currency.

But ECB policymaker Ewald Nowotny said the fall in the
currency was not a cause for concern, adding the exchange rate
was in a “normal range” and there was no reason for hysteria
about it. [ID:nDEK002037]

Technical analysts said the next key support was at
$1.2135, the 50 percent retracement of the rally from the
all-time lows near $0.82 to the record highs just above $1.60.

Analysts said the widening euro zone problems had prompted a
money market dollar liquidity shortage.

“If the sharp deterioration in money markets persists into
this week, look for central bank action to lower the cost of
access to their dollar funding facilities,” Citibank analysts
said in a note.

The euro had extended its losses in Asia after falling
below the post-Lehman October 2008 low around $1.2330, where
traders said stop-losses from model accounts were lurking, and
fell as far as $1.2234 on trading platform EBS, its lowest
since April 2006.

A 750 billion euro rescue package from the European Union
and the International Monetary Fund aimed at shoring up euro
zone bond markets has done little to underpin the euro.

On Friday, the single currency euro plunged after European
Central Bank policymaker Axel Weber said it was important not
to underestimate lingering dangers to financial stability.
[ID:nLAG006286].

German Chancellor Angela Merkel on Sunday said the rescue
plan had only bought time to sort out the yawning gap between
the euro zone’s strongest and weakest economies.
[ID:nLDE64F0FQ].

Traders say the austerity measures announced by Greece,
Spain and Portugal could hurt growth in the near term and force
the European Central Bank to keep interest rates low.

“There is a rapidly growing consensus that (the euro) could
fall to parity with the dollar,” said Ed Yardeni, president &
chief investment strategist at Yardeni Research.

Data released on Friday showed speculative bets against the
euro hit a record high in the week to May 11. [ID:nN14193796].

Against the yen, the euro traded up 0.3 percent at 114.75
yen after falling to 112.47 (EURJPY=: ) in Asia trade.

Sterling slid to its lowest since March 2009 at $1.4249
(GBP=D4: ) before rising back to $1.4501, still down 0.3 percent
on the day. The pound was hit by data showing the past year’s
rise in British house prices may be cooling. [ID:nLDE64C1G4]

The dollar briefly fell further against the yen, though
well off the session low, after a gauge of manufacturing in New
York State continued to grow in May but at a slower pace.
[ID:nN17209874]. The dollar was last at 92.51 yen, up 0.1
percent from Friday’s close.

Weakness in the euro and the pound helped the dollar index (Read more about the global trade. )
(.DXY: ), a calculated measure of the dollar’s performance
against a basket of currencies including the Swedish Crown, to
rise above 87.00, the highest since March 2009. It later eased
to 86.051, the session low.

Stock Market Investing

(Additional reporting by Neal Armstrong in London)
(Reporting by Nick Olivari; Editing by Theodore d’Afflisio)

FOREX-Euro rallies from four-year low against the dollar