FXOUTLOOK-US dollar seen lower next week after jobs data

* Dollar likely to fall in coming week on rate outlook

* U.S. jobs data solid but not enough for investors
(Adds IMM details, updates percentage changes)

NEW YORK, March 4 (Reuters) – The U.S. dollar is likely to
fall in the week ahead as investors continue to bet that
interest rates in the euro zone will rise ahead of those in the
world’s largest economy.

U.S. February jobs data came in a touch better than
expected on Friday but disappointed investors who had hoped for
an even stronger report. For details see [ID:nOAT004757].

Investors see strong U.S. jobs growth as necessary for the
Federal Reserve to end its second round of quantitative easing
and instead tighten monetary policy by raising rates.

The U.S. situation is in sharp contrast with that of the
euro zone, where the zone’s common currency is likely to remain
supported after European Central Bank President Jean-Claude
Trichet strongly hinted at an interest rate rise in April,
bolstering the view the ECB will tighten monetary policy before
the Fed. [ID:nLDE7220KJ]

“We had Mr. Trichet warning Thursday that the ECB is
considering a rate hike and perhaps the start of a rate hike
cycle,” said Joseph Trevisani, chief market analyst at FX
Solutions in Saddle River, New Jersey. “The U.S. job number
came in as expected and provided little direction to the market
other than it did not disappoint and that will support risk

For the week, the euro gained 1.7 percent against the
dollar (EUR=EBS: Quote, Profile, Research) on electronic trading platform EBS, the third
straight weekly gain, while the dollar gained 0.8 percent
against the yen (JPY=EBS: Quote, Profile, Research).

A slew of technical factors also indicate investor caution
on the dollar, particularly against the euro.

One-month euro/dollar risk reversals last traded at -1.175
on Friday (EUR1MRR=GFI: Quote, Profile, Research), according to Reuters data, with a bias
toward euro puts and dollar calls, suggesting more investors
are betting the euro will fall than will rise.

But that compares with late November when one-month risk
reversals posted at -2.83, suggesting negative sentiment on the
euro has eased substantially. The euro has already gained more
than 6 percent against the dollar since that time.

Those gains pushed the euro/dollar above its 200-week
moving average this week for the first time since mid November,
piercing a strong long-term resistance level.

There is now little to prevent the euro’s rise to $1.4283
on EBS, the November high from which it slid to $1.2860 in
January but from which low it has steadily retraced higher.
Stamford, Connecticut-based Faros Trading sees the euro making
a move to the $1.50 level within the next three months.

Nearer term, the buy signal triggered on Feb. 23 when the
12-day and 26-day moving average convergence divergence line
rose above the 9-day signal line is also holding. The MACD is
an indicator of short-term momentum by focusing on exponential
moving averages and closing prices.

Investors were betting heavily against the dollar ahead of
the jobs data and Trichet’s comments.

The value of the dollar’s net short position rose to $34.9
billion in the week ended March 1 from $22.36 billion a week
earlier, according to Commodity Futures Trading Commission data
on Friday and Reuters calculations. It was the largest net
short dollar position for which Reuters has data, dating back
to June 2008.

Net long positions in the euro rose to 51,308 contracts,
the highest since January 2008, from 45,598 contracts in the
prior week.

The dollar is also seen struggling against the yen as it
failed to hold onto its initial gains after the jobs data.

“Bernanke may be relieved to see another month of
improvement in the unemployment rate, but given the underlying
weakness of the report, the central bank will still argue that
unemployment remains extremely high and therefore continued
stimulus could be warranted,” said Kathy Lien, director of
currency research at GFT in New York.

Bets on the yen also jumped to 41,274 contracts, only the
largest since November but a big change from the 27,746 short
bets last week.

With talk that the Fed may even go for a third round of
quantitative easing after the current phase ends in June,
strong jobs growth for at least the next three months is
consequently key to any dollar revival.

Even ongoing political instability in the Middle East and
North Africa and the threat that it may spread to Saudi Arabia,
a key U.S. ally in the region and a global oil supplier, could
weaken the dollar.

While the dollar has been regarded as a safe haven in times
of turmoil, some investors suggest higher oil prices would push
other central banks to raise interest rates to counter
inflation even as the Fed maintains its stimulative monetary
policy, which would again leave investors chasing yield with
little choice but to sell the dollar.
(Reporting by Nick Olivari; Editing by James Dalgleish)