FOREX-Euro sags in downtrend, dollar picks up with yields

* Euro hovers below $1.3200, stops/support about $1.3165

* Dollar edges above 84.00 yen, needs to sustain move

* U.S. yields edge higher

By Charlotte Cooper

TOKYO, Dec 13 (BestGrowthStock) – The euro slipped on Monday, looking
set to remain in its downtrend for now, while the dollar edged
up, supported by higher Treasury yields after improving U.S. data
late last week.

The euro has been under steady pressure in recent weeks on
concerns over debt levels in peripheral euro zone states, and
many in the market expect that pressure to remain, with some
looking for a re-test of this month’s low at $1.2969.

There was talk of a mixture of automatic stop-loss sell
orders and take-profit orders on the euro in the $1.3165-80 area,
just below the day’s low of $1.3182 (EUR=: ), and then euro bids at
$1.3150 and more sell stops below that.

Currency speculators trimmed short positions against the
dollar last week but more than doubled their bets against the
euro, according to data from the Commodity Futures Trading
Commission, signalling growing bearishness on the currency.

“Euro positioning made a determined incursion into short
territory last week, for the first time since early September,
suggesting the escalating sovereign debt saga continues to take
its toll,” wrote Gareth Berry, a FX strategist at UBS in

A trader at a Canadian bank cautioned, however, that if the
market was too heavily short on the euro at this point there was
a risk of a short-covering rebound.

On the charts, resistance was expected up at $1.3280.

The euro was 0.3 percent down from U.S. trading levels, at
$1.3196 on trading platform EBS.

European Union leaders meet later this week. [ID:nLDE6B90K3]

But while core euro countries Germany and France have pledged
to better align tax and labour policies to foster convergence,
they rejected calls for a rescue fund to be increased or for
joint sovereign bonds, and the lack of unity over a solution is
expected to keep pressuring the currency sporadically.


The dollar has been supported by a rise in Treasury yields
following a proposal in the United States to extend Bush era tax
cuts, which is seen as helping the economy, and economic
indicators have been improving, if unevenly.

Consumer sentiment data on Friday showed confidence at its
highest in six months. The data fits into a pattern of an economy
that is gaining traction after a slowdown and is likely to
intensify the debate on whether the Federal Reserve needs to keep
stimulating the economy through asset purchases.

The Fed meets on Tuesday and officials are expected to assess
its second round of quantitative easing announced in November,
the prospect of which dragged the dollar lower in September and
October. But they are not expected to signal any shift away from
their intention to buy $600 billion in government debt, despite
Washington’s proposal to extend tax cuts. [ID:nN08167483]

The benchmark Treasury yield has touched its highest in six
months, at 3.39 percent (US10YT=RR: ), but the dollar, while
supported by the more attractive returns, has not gunned much
higher against the yen in the same period.

Robert Ryan, an FX and interest rate strategist at BNP
Paribas in Singapore, said the two-year yield was probably a
better gauge of economic and dollar recovery prospects at this
stage as the 10-year yield response could be complicated by
longer term concerns about the U.S. budget deficit.

The two-year yield (US2YT=RR: ) climbed to 0.67 percent on
Monday, its highest since July.

Dollar/yen has a mildly positive 90-day rolling correlation
with the two-year yield of just below 0.7 at the moment, less
pronounced than in July and September when both yields and the
dollar were falling.

The dollar rose 0.2 percent to 84.10 yen (JPY=: ). The 84 yen
level is a barrier it has struggled to hold above in the past few
couple of weeks.

Traders reported that Japanese exporters had been selling
dollars at 84.00 to 84.05 yen, with more offers expected above
84.50. The dollar has resistance up at 84.41 yen, a two-month
high set in late November.

The dollar index (Read more about the global trade. ), a gauge of its performance against six
major currencies, rose 0.3 percent to 80.26 (.DXY: )(=USD: ) but is
still below a two-month high of 81.44 set in late November.

The high-yielding Australian dollar, which has export ties to
China, was steady at $0.9845 (AUD=D4: ).

It showed little reaction to a jump in China’s inflation rate
reported at the weekend after the Asian giant on Friday hiked its
reserve requirement ratio, the amount of money lenders must keep
in reserve, for the third time in a month. [ID:nTOE6BA009]
(Additional reporting by Yoko Matsudaira, and contribution by
Reuters FX analyst Krishna Kumar in Sydney and IFR analyst John
Noonan; Editing by Michael Watson)

FOREX-Euro sags in downtrend, dollar picks up with yields