FOREX-Euro struggles to hold gains after Fed comments

* Euro hits day’s low, Fed comments clash with ECB view

* Support at $1.40, but seen in range below $1.4250

* Euro/yen at post-intervention high; Dlr/yen inches up

(Updates prices, adds quotes)

By Jessica Mortimer

LONDON, March 29 (Reuters) – The euro struggled to hold
gains against the dollar on Tuesday, as expectations for a euro
zone interest rate rise were offset by a Federal Reserve warning
about keeping U.S. monetary policy loose for too long.

The euro rose to around $1.4150 before retreating as traders
took profits on its gains after Fed President James Bullard said
the U.S. central bank may normalise monetary policy before
global uncertainties are resolved. [ID:nLDE72S0RJ]

Further comments about a possible cut to the Fed’s second
round of quantitative easing pushed the euro to a session low,
although bids around $1.4050, including those from sovereign
names, were seen limiting further near-term losses.
The euro has retreated from a 4 1/2-month high of $1.4249
hit last week, but has been supported on the view the European
Central Bank may raise interest rates as early as next month.

Comments from ECB President Jean-Claude Trichet on Monday
bolstered this view as he said inflation was “durably” above the
central bank’s target. [ID:nLDE72R20A]

“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”.

The euro (EUR=: Quote, Profile, Research) was a touch lower on the day at $1.4060. It
pushed through bids seen around $1.4080, but hovered above a low
of $1.4021 hit on Monday.

The $1.40 level is supported by a trendline drawn 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.

On the upside, heavy options-related barriers around $1.4250
were expected to cap gains. A break of that level may see a test
of the November high of $1.4283.

Many in the market argued the euro would likely stick to the
$1.40-$1.4250 range ahead of U.S. payrolls data due on Friday,
while low implied volatility levels suggested a break-out on
either side was unlikely in the near term.

One-month euro/dollar implied vol (EUR1MO=: Quote, Profile, Research) traded around
9.9 percent on Tuesday, near its lowest level in roughly a year.

“One-month (vol), which still covers the post-Easter lull,
remains reasonably offered,” Citi analysts said in a note. “We
feel that it is hard to see it pop with everyone keen to jump on
the selling bandwagon whenever it does start moving higher.”

RATE OUTLOOK SUPPORT

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]

The euro also rose 0.5 percent against the yen (EURJPY=R: Quote, Profile, Research) to
around 115.64 yen, its highest level since Group of Seven
central banks intervened jointly at Japan’s request to curb the
yen’s appreciation following a devastating earthquake. It was on
course to test 116.03, above which would mark a 10-month high.

The dollar rose 0.5 percent to 82.10 yen (JPY=: Quote, Profile, Research), with
traders citing demand from UK and European banks. Gains were
capped by offers, including those from Japanese exporters,
around 82.00 yen. Further up, orders were seen around 82.50 and
83.00.

The rise in the U.S. currency versus the yen has quelled
speculation of further Japanese intervention. Many in the market
anticipate a fall to around 80 yen or lower will be required for
Tokyo to re-enter the market to sell the Japanese currency.

The dollar index (.DXY: Quote, Profile, Research), which tracks the U.S. currency’s
performance against a basket of major currencies, edged up 0.2
percent to 76.298.
(Additional reporting by Naomi Tajitsu; Editing by Catherine
Evans)

FOREX-Euro struggles to hold gains after Fed comments