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FOREX-Euro posts worst week since January; prospects dim

Published 05/06/2011, 04:41 PM
Updated 05/06/2011, 04:44 PM
WFC
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* Report Greece considering leaving FX bloc hits euro

* Greece denial of euro zone exit has little impact

* Commodities, high-yielders in clearing-out process

* U.S. jobs report boosts dollar/yen (Updates prices, adds comment)

By Gertrude Chavez-Dreyfuss

NEW YORK, May 6 (Reuters) - The euro on Friday headed for its worst week against the dollar since January and further losses were seen as likely, as sovereign debt concerns reappeared after a German news report, later denied, suggested Greece had raised the possibility of leaving the euro zone.

Spiegel Online reported euro zone finance ministers were meeting in Luxembourg on Friday to discuss Greece, including the issue of its possible exit from the currency bloc. Greece, through its Finance Ministry, later denied it was considering leaving the euro zone.

The Greece headlines, however, were enough to send investors further unwinding long positions on the euro, which hit a low of $1.43150 -- its weakest level since April 19 on electronic trading platform EBS.

Market participants said the pullback in the euro was a natural correction in a currency that, at one point, had surged more than 10 percent so far this year.

"What's happening today also reflects the fact that markets are increasingly unwilling to hold long euro positions into the weekend," said Vassili Serebriakov, senior currency strategist, at Wells Fargo in New York.

"It really depends on how much substance there is behind the press reports (on Greece), but from a technical perspective, the drop below $1.45 is fairly significant. It's probably too early to say that the euro is back on a declining path, but a test of $1.50 is now off the table for the moment," he said.

In late afternoon New York trading, the euro traded lower at $1.43480, down 1.3 percent on the day, further retreating from a 17-month peak fo $1.49404 scaled on Wednesday. With losses for the week of 3.3 percent, the euro was on pace for its worst week against the dollar since January.

But some traders said the euro is still likely to gain against the dollar in the medium term, as euro zone rates are expected to rise more quickly than those in the United States.

Speculators said as much as they boosted short dollar bets to their highest in two months and increased long euro positions to their highest since July 2007, according to data from the Commodity Futures Trading Commission.

The euro fell nearly 2 percent on Thursday after ECB President Jean-Claude Trichet signaled a rate hike was unlikely next month, but left the door open for a move in July.

The dollar, meanwhile, also got a boost from data on Friday showing U.S. employers added 244,000 jobs last month, well above what economists had expected. That boosted U.S. bond yields and increased the dollar's appeal against the yen. It was last up 0.5 percent at 80.54 yen.

It also offered respite for a market that was trying to digest a recent run of weaker-than-expected U.S. data that some feared pointed to a slowdown in the pace of U.S. growth.

Concerns the world economy could also lose steam spurred a massive run for the exit on Thursday, sending oil into freefall and hurting high-yielding currencies such as the Australian dollar that are sensitive to commodity prices and the global growth outlook.

Thursday's commodity rout spurred traders to unwind trades financed with cheaply borrowed dollars and the greenback had its best day against major rivals since October.

Those moves were partly reversed on Friday, though oil dipped back under $100 a barrel and was down 2 percent after the Der Spiegel online report on Greece. It fell 10 percent on Thursday.

Meanwhile, the Australian dollar recouped losses to trade more than 1.2 percent higher at US$1.0703, although it was still some distance away from a near three-decade peak above US$1.10 hit early this week.

"It's a natural clearing-out process after being overbought," said Adrian Lee, president and chief investment officer, at Lee Overlay Partners, referring to Thursday's sell-off in commodities and high-yielding currencies.

"But commodities and high-yielders will be back. In fact, those long positions could be put back on next week. There's definitely pressure for these assets to appreciate because the global economy is definitely improving," Lee said in New York.

Lee Overlay has assets under management of $8.5 billion.

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