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FOREX-Dollar flat on profit-taking; yen hits 15-year high

Published 10/11/2010, 09:55 AM
Updated 10/11/2010, 10:00 AM

* US dollar shorts largest since at least mid-2008

* G7/IMF meetings fail to reach agreement on currencies

* Dollar hits 15-yr low vs yen but steadies around 82.00 (Updates prices, adds quote, changes byline, changes dateline, previous LONDON)

By Wanfeng Zhou

NEW YORK, Oct 11 (Reuters) - The U.S. dollar was little changed versus the euro and yen on Monday as traders booked profits on their bets against the greenback after failing to take out key resistance levels.

Sentiment toward the dollar remained broadly bearish, however, as the Federal Reserve looked set to pump more cash into the economy and after a weekend meeting of finance leaders produced no quick fix for tensions in currency markets.

The euro had climbed as high as $1.4012 earlier in the global session, but the move lost momentum after the pair failed to hold above the $1.40 area for a second time since hitting a 8-1/2 month high of $1.4030 last Thursday.

"Clearly 1.40 has been a pretty big resistance level for euro/dollar. The market is looking for any kind of excuse to sell euro/dollar for the time being and maybe bring it back below the $1.39 level," said Boris Schlossberg, director of currency research at GFT in New York.

"While the fundamentals are still very dollar bearish, the positioning is actually dollar bullish. At this point, the positioning is going to matter more than the fundamentals in terms of driving trade," he added.

In early New York trading, the euro was flat at $1.3939, after earlier climbing to $1.4012 on electronic trading platform EBS.

Currency speculators boosted bets against the dollar to $30 billion in the latest week, the largest amount since at least mid-2008. Net long positions on the euro rose to 48,243 contracts, the highest since at least Oct. 2009.acted as support on Dec. 22, when the euro was declining. The next key level is at $1.4372, the 76.4 percent retracement of the euro's fall from November to June.

G7, FED COMMENTS

The dollar sank to a 15-year low of 81.37 yen in Asian trade but recovered to last trade flat at 81.91 yen. Options traders said a large 82.00 expiry for Monday's 1400 GMT cut could restrict further movement, along with the U.S. Columbus Day holiday.

The risk of another round of intervention to weaken the yen seemed to have grown after Japan weathered the flurry of weekend G7 and IMF meetings with hardly any criticism of its recent yen sales, but there was no sign of action on Monday.

Traders said the next focus would be on minutes from the Federal Reserve's September policy meeting, due out on Tuesday, for fresh insight into the central bank's thinking on further monetary easing.

A round of speeches by Fed officials, including Chairman Ben Bernanke, this week could also shed light on policymaker's views on the economy and monetary policy.

"Short dollar positions are stretched but it will take a turnaround in U.S. data or if the Fed rules out QE to see a dollar rebound," said Adrian Schmidt, FX strategist at Lloyds TSB Financial Markets.

The IMF's failure to reach an accord on currencies seemed to ensure currency tensions would only mount and it left dealers wondering when more governments would take action to shift the burden of the falling dollar.

The dollar also found some support after sources said China raised reserve requirements by 50 basis points for six large commercial banks on Monday, which dented some risk appetite..

The dollar fell 0.1 percent against a basket of currencies to 77.238, close to a nine-month low of 76.906 hit on Thursday.

(Graphics by Scott Barber; additional reporting by Neal Armstrong in London) (Editing by Theodore d'Afflisio)

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