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FOREX-Euro nears key resistance; Swiss franc touches record high

Published 02/25/2011, 12:46 AM
Updated 02/25/2011, 12:48 AM

* Dollar hits record low vs Swiss franc for 2nd straight day

* Fall in oil prices from peaks lends dollar some support

* Euro nears $1.3862 resitance, above that would be 3-½ mth high

* Aussie hits 10-year high vs NZ dollar on diverging rate view

By Hideyuki Sano and Masayuki Kitano

TOKYO/SINGAPORE, Feb 25 (Reuters) - The euro edged closer to a key resistance against the dollar on Friday, supported by more inflation-fighting rhetoric from the European Central Bank, while the Swiss franc touched a new peak on fears the unrest in Libya may spread to other oil producers.

The dollar's fall, however, was tempered somewhat after oil prices came off of 2-½ year highs, and market players said the U.S. currency could regain ground in the near-term if short dollar positions against the Swiss franc are unwound.

The euro rose 0.2 percent to $1.3828 , nearing resistance at $1.3862, a peak reached in early February.

One possible resistance above that lies at $1.3947, the 76.4 percent retracement of the euro's November to January slide. Another is $1.3974, the euro's intraday high on Nov 9.

"While in Europe there is talk of monetary tightening due to inflationary pressures, rises in oil prices are seen as negative for the U.S. economy," said Koji Fukaya, chief FX strategist at Credit Suisse in Tokyo.

"Yield differentials have been moving against the dollar," he added.

Higher oil prices are seen as having a bigger impact on the U.S. economy given it's reliance on consumer spending as a source of growth.

Lending support to the euro were more hawkish comments from European officials. ECB policymaker Axel Weber said the only direction for interest rates to go is up. [ID:nWEB1519]

Other ECB officials recently talked tough about fighting inflation, reinforcing market view that the ECB will raise interest rates before the U.S. Federal Reserve.

One trader said the euro was likely to be supported until an ECB policy meeting next week and could rise above the February peak of $1.3862. But further gains may be limited since a lot of debt issued by euro zone peripheral countries is due to mature in April, and could put the focus back on their fiscal woes.

The euro's recent ascent has come not only against the dollar but also against some emerging Asian currencies, in a possible sign of investors shifting out emerging market assets and into developed markets.

The euro has climbed 3.4 percent against the Taiwan dollar so far in February and 1.6 percent against the South Korean won .

MARKET SEEN LONG SWISS FRANC

The dollar hit a record low of 0.9229 Swiss francs on trading platform EBS earlier on Friday. After trimming some losses, the dollar it stood at 0.9251, down 0.1 percent from late U.S. trading on Thursday.

"Among the currencies typically regarded as safe havens, namely the dollar, yen and Swiss franc, the Swiss franc may be the currency that is closest to seeing its interest rates rise," said Credit Suisse's Fukaya, referring to the potential for monetary tightening by Switzerland's central bank.

But with many market players now probably long on the Swiss franc, the currency may face some long liquidation, especially if oil prices stabilise, market players said.

"That safe-haven trade of going long Swiss may just turn around a little bit," said a trader at a U.S. investment bank.

The dollar inched up 0.1 percent against the yen to 81.93 yen and the euro rose 0.3 percent to 113.29 yen . A trader for a Japanese bank cited yen-selling against the dollar and other currencies by Japanese importers.

In a sign that market players are not expecting the Middle East unrest to trigger an acute bout of risk aversion, implied volatilities on dollar/yen options quickly lost steam.

One-month dollar/yen volatility slipped back below 10 percent after shooting above that threshold earlier this week.

"I suspect the market's focus will shift back to the recovery story from the Middle East by the time we have U.S. payroll data next week," an options trader said.

The Australian dollar rose 0.4 percent to $1.0131 , underpinned by strong gains against its New Zealand counterpart , as investors priced in prospects of a New Zealand rate cut following the deadly earthquake.

The Aussie rose to a 10-year high of NZ$1.3509 , up about two cents on the week on diverging outlooks for interest rates. (Additional reporting by Ian Chua in Sydney and Reuters FX analyst Rick Lloyd in Singapore; Editing by Tomasz Janowski)

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