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FOREX-Dollar on defensive but euro, others lack punch

Published 05/15/2009, 02:00 AM
Updated 05/15/2009, 02:16 AM
STAN
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* Dollar index dips, near recent 4-month low

* Euro, Aussie, sterling remain on uptrends vs dollar, yen

* Gain on Wall St sees pick-up in riskier trades

* But market lacks conviction to push them higher in Asia

By Charlotte Cooper

TOKYO, May 15 (Reuters) - The dollar was back on the defensive on Friday, holding close to a four-month low, after a climb in U.S. stocks gave investor confidence a lift and boosted the fortunes of riskier currencies.

The euro, sterling and the Australian dollar held on to gains made on Thursday against the greenback and the yen, keeping within sight of recent highs made as optimism has grown that the worst of the global economic crisis may be over.

But they lacked conviction to push any higher against the dollar, even though stock markets in Asia were on the rise, and traders said the rally had run out of steam for now.

"The dollar still looks soft but people don't want to sell it too aggressively at these kind of levels," said Gerrard Katz, regional head of FX trading at Standard Chartered in Hong Kong.

"We've moved a fair bit already so fresh selling is not rushing into the market."

The dollar dipped 0.1 percent against a basket of six major currencies to 82.361, holding close to a four-month low on the index set on Wednesday at 81.871.

It has lost 9 percent against the euro since early March, but the European currency is now struggling to break above $1.3740, where resistance from a 38.2 percent Fibonacci retracement of its 2008 fall from above $1.60 has blocked its path.

The euro hit a seven-week high at $1.3722 this week, but was 0.1 percent lower on the day at $1.3630.

Analysts said euro zone and U.S. data might offer some direction later as investors assess relative economic recovery prospects and monetary policies. The Federal Reserve is engaged in keeping interest rates low by buying government debt but European Central Bank policymakers differ on the scale of asset purchases they should use to support the economy.

Euro zone gross domestic product data due at 0900 GMT is forecast to show the region's economy shrank 2.0 percent in the first quarter from the previous three months, more than a 1.6 percent fall in the prior quarter.

RETAIL INTEREST

Data showed Japanese margin traders trimmed net long positions in sterling and the euro against the yen on Thursday and their net yen short positions in major cross/yen pairs and dollar/yen fell by 1,077 contracts to 113,423, down slightly from a two-week high of 114,500 on Wednesday.

However, retail traders are still adding to long positions in Aussie/yen and kiwi/yen and also raised their net longs in dollar/yen on Thursday when the greenback hit a two-month low of 95.10 yen on trading platform EBS.

The dollar edged up 0.1 percent to 95.84 yen.

The Australian dollar, which hit seven-month highs against both the yen and the dollar this week, has been a favourite play for short-term speculators looking to benefit when the global economy bottoms out.

It climbed more than 1 percent against the dollar on Thursday but then paused at $0.7595 and 72.75 yen, barely changed from late U.S. trade.

The New Zealand dollar fell, dropping 0.5 percent to $0.5931 after weak first-quarter retail sales figures and comments from the International Monetary Fund that New Zealand may have to ease monetary policy further.

The New Zealand dollar broke above its 200-day moving average last week and hit a six-month high of $0.6127 this week, just short of a 38.2 percent retracement of its fall to its March 2009 low from its March 2008 high that lies near $0.6163.

The kiwi's dip below its five-day moving average this week and the fact that its 200-day moving average is trending downwards suggest that the kiwi may ease in the near term, said Masashi Hashimoto, senior analyst for Bank of Tokyo-Mitsubishi UFJ.

The kiwi may dip towards its 21-day moving average near $0.5770, Hashimoto said, adding that one point to watch will be whether it manages to stay above that support. (Additional reporting by Masayuki Kitano; Editing by Chris Gallagher)

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