FOREX-Euro slips off 2-mth highs, high-yielders firm

* Euro down 0.2 pct at $1.2667 (EUR=: )

* Euro resistance layered above $1.27

* Gap widens between 1-mth and 1-yr risk reversals

* High-yielders hold gains on improving risk appetite

(Adds quotes, prices)

By Lin Noueihed

LONDON, July 9 (BestGrowthStock) – The euro slipped off two-month
highs against the dollar on Friday with investors taking profits
ahead of the weekend as strategists said its recent rally would
peter out due to lingering worries about the euro zone economy.

The single currency was supported in U.S. trade on Thursday
by strong German factory data [ID:nLDE6670ZL], a positive U.S.
jobs report and more clarity on European bank stress tests, all
of which boosted demand for riskier assets such as shares.

“The euro rebound is now running out of steam. It is facing
tough resistance at the $1.27 level,” Ian Stannard, foreign
exchange strategist at BNP Paribas, said.

“We expect it to come back under pressure. Continued concern
regarding the stress tests will weigh in the medium term…
Overall the picture for euro is negative.”

The euro erased gains to trade down 0.2 percent at $1.2667
(EUR=: ) at 0941 GMT, after reaching a 2 1/2-month high of $1.2723
on trading platform EBS.

“Euro/dollar was sold on profit-taking ahead of the
weekend,” one London-based trader said.

Options with a strike price of $1.2650 set to expire later
on Friday were seen supporting the euro, traders said, after it
fell to the day’s low of $1.2661.

BNP’s Stannard said more demand for high-yielding commodity
currencies such as the Australian dollar would also hit the
euro, which has come to be seen as a funding currency.

Despite its recent rally, the euro zone’s debt problems have
discouraged investors from going long on the euro.

Some Asian central banks were seen willing to re-establish
long euro/dollar positions above $1.2750 because a clear breach
of $1.2730 would suggest the downtrend had been broken.

The euro could reach $1.2767 as the target off an A-B-C wave
sequence starting from the euro’s four-year low at $1.1876, with
the C-wave starting at $1.2152. The $1.2780 area is a 50 percent
retracement of its fall from mid-April to the June low.

“The euro traded up primarily on global risk appetite…but
it is not doing an awful lot off its own fundamentals,” Adam
Cole, global head of foreign exchange strategy at RBC Capital
Markets, said.

“There is still a risk that euro shorts get covered and the
bounce extends but it is no more than that: a short-term bounce.
There are plenty of hurdles for the euro zone to get over.”

That view was reflected in the gap between 1-month risk
reversals (EUR1MRR=ICAP: ), which have fallen nearly 55 basis
points to 0.85/1.35 percent since end-June, and 1-year risk
reversals (EUR1YRR=ICAP: ), which have shed 25 basis points.

This indicates market players are willing to pay a higher
premium to buy the right to sell the euro down the line.


The euro touched a two-week high of 112.69 yen (EURJPY=R: ) on
EBS after jumping more than 1 percent on Thursday but pared
those gains and was flat at 112.19 euro.

The yen (JPY=: ) was under pressure as investors cut long
positions and shifted funds towards high-beta currencies like
the Australian (AUD=D4: ) and New Zealand dollars (NZD=D4: ).

The dollar gained 0.2 percent to 88.60 yen (JPY=: ). It has
moved away from a seven-month low of 86.96 yen struck on July 1.

The dollar index (Read more about the global trade. ) (.DXY: ) edged up 0.03 percent to 83.846
after dipping to a two-month low.

Markets awaited Canadian jobs data due at 1100 GMT. The U.S.
dollar was flat at C$1.0430 (CAD=D4: ).

(Additional reporting by Tamawa Desai)

FOREX-Euro slips off 2-mth highs, high-yielders firm