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FOREX-Euro off multi-month high; yen in tight range near 81

Published 03/22/2011, 11:15 AM
Updated 03/22/2011, 11:16 AM

* Euro faces resistance around $1.4250, then $1.4280

* U.S. dollar index hits 15-month low, sterling rises

* Yen trading subdued, no intervention seen (Updates prices, adds comment, details)

By Wanfeng Zhou

NEW YORK, March 22 (Reuters) - The euro eased after hitting a 4-1/2-month high against the dollar on Tuesday, but expectations of a euro zone interest rate hike next month could limit any downside for the currency.

The euro climbed as high as $1.4249 on trading platform EBS, but gave up gains after running into options-related barriers at about $1.4250. Further resistance is seen about $1.4280, the November high.

With the European Central Bank widely expected to raise interest rates next month, traders said the euro may make another run at those levels.

"This, to me, is just a technical pullback," said Joseph Trevisani, chief market analyst at FX Solutions in Saddle River, New Jersey.

The euro last traded at 1.4201, down 0.2 percent on the day. Technical analysts at Citigroup said they expect a test of the $1.48-$1.51 area in the near term. The euro hit $1.5144 back in November 2009.

Comments from ECB President Jean-Claude Trichet and other ECB policymakers, who reiterated they were ready to act quickly to guard against inflation, have lifted in the euro in recent sessions.

German two-year bond yields have risen about 30 basis points over the past week to 1.75 percent, widening the gap over U.S. Treasury yields to about 110 basis points.

"Euro/dollar is supported after Trichet continued to signal a rate hike in April and by developments in yields," said Mic Ingenuus, currency strategist at Nordea in Copenhagen.

"A test of the $1.4283 level is extremely likely in the next couple of days, if not today."

The yen traded in a tight range, hovering around 81 per dollar. In the near term, analysts said the 80 to 80.85 area could serve as a floor as markets remained on alert for further intervention by the Group of Seven nations to counter yen strength.

The Group of Seven countries may have sold a total of around 530 billion yen ($6.5 billion) last Friday as they intervened in forex markets to weaken the currency, data from the Bank of Japan showed on Tuesday.

The amount is far smaller than market talk indicating they could have sold around 2 trillion yen, though some analysts said the figure was not a surprise.

Japan again warned it would act to keep the yen in check, but traders saw no action in the FX market on Tuesday from Japanese or other G7 authorities. That resolve could be tested if dollar/yen looks like it will break back below 80 yen.

The dollar last traded at 81.00 yen, down marginally on the day but in the middle of the day's narrow range of 80.80-81.30 yen.

Yen volatility has eased significantly since late last week, and some analysts said calmer markets in the coming weeks would decrease the need for Tokyo to smooth any appreciation in the Japanese currency, even if the dollar creeps below 80 yen.

Sterling added 0.4 percent at $1.6381, having earlier risen to $1.6403, the highest since January 2010. Euro/sterling was down 0.5 percent at 86.70 pence.

British inflation last month surged to a 28-month high of 4.4 percent, reviving speculation the Bank of England will not wait much longer to raise interest rates.

The dollar index, a measure of the greenback's value against a basket of six major currencies, fell 0.2 percent to 75.249, the lowest since early December 2009. The index was last at 75.508, up slightly on the day.

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