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FOREX-Euro rally loses steam as focus turns from Greece to data

Published 07/01/2011, 01:34 AM
Updated 07/01/2011, 01:36 AM
EUR/USD
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* Euro runs out of steam after strong rally this week

* But falls limited as Asian central banks buy euro

* Focus shifts from Greece as it set for emergency funds

* U.S. ISM manufacturing data in focus on Friday

By Ian Chua and Antoni Slodkowski

TOKYO/SYDNEY, July 1 (Reuters) - The euro's advance against the dollar lost momentum on Friday after a rally this week as the market focus shifted to upcoming economic data, with Greece looking set to secure emergency funds and avert imminent default.

The single currency, however, was supported by buying from Asian central banks after early rounds of profit-taking had pushed it down to an Asian session low of $1.4467, Tokyo bank dealers said.

Investors broadly covered short positions in the dollar and locked in profits on outperforming commodity currencies such as the Australian and New Zealand dollars after China's purchasing managers' index came in slightly below expectations at 50.9.

The euro was also well-supported against the yen and the Aussie with traders saying the market was starting to rebuild longs ahead of Thursday's European Central Bank monetary policy meeting.

Investors will focus on a news conference by ECB President Jean-Claude Trichet following the meeting, during which it is expected to raise interest rates again, with data earlier this week showing inflation in June having stabilised well above the bank's target.

"A possible rate hike is already priced in and investors will now look for suggestions of any potential further hikes," said Sumino Kamei, a senior currency analyst at the Bank of Tokyo-Mitsubishi UFJ.

"If such clues are not provided, the euro ... may be sold off even more aggressively," said Kamei. It would probably come under some short-term pressure anyway, because people would try to "sell the fact," she said.

The euro traded at $1.4514 , up 0.1 percent from $1.4504 late in New York, where it peaked near $1.4539, a level not seen since June 10.

It has rallied some 3 percent from Monday's trough around $1.4100 in a dramatic week that saw market sentiment swing from worries that Greece would go bankrupt to relief that it would get through the crisis, against a backdrop of violent protests and general strikes over austerity steps.

Immediate resistance for the common currency is seen at the overnight high, with the 55-day moving average of $1.4404 likely to provide support.

But in the long term, the euro may regain more ground against the dollar after data showed factory activity in the U.S. Midwest accelerated in June, ahead of the national ISM manufacturing report due later on Friday.

"With Greece passing the votes to clear the way for the next tranche of EU/IMF support, the key to a move to EUR/USD 1.50 and beyond is confirmation that the soft patch is not something much more sinister," Societe Generale strategists wrote in a note.

"ISM and payrolls loom, but we expect July/August to see a friendlier environment for the euro, a less friendly one for yen and dollar."

Indeed, the dollar index , which tracks the greenback's performance against a basket of major currencies, languished near three-week lows. It last stood at 74.34, after falling as low as 74.255.

SUPPORTED BY TOSHIN, CAPPED BY EXPORTERS

Against the yen, however, the dollar edged higher after solid bids by investment trust funds around 80.50 yen. Retail investors were pouring their summer bonuses into foreign investment trust funds, drawing yen-selling demand, says Tsutomu Soma, a senior manager at Okasan Securities.

"We are expected to see flows from retail investors for July too, which should keep dollar/yen solid," Soma said. It last traded up 0.2 percent at 80.70 yen. But exporters cited sell orders lined up above 81 yen.

Still, it stayed within a well-trodden range of 79.50-82.20 yen seen in the last two months.

The Aussie fell as low as $1.0673 as stop-loss orders were triggered around $1.0690 shortly after the Chinese PMI figures came out. It has recouped most of its losses towards the end of the session, having found strong support above its 55-day moving average of $1.0661.

Commodity currencies have been among the star performers this week. The Australian dollar rallied some 3 percent from Monday's trough to a high of $1.0750 . It has since given back a bit of ground to trade at $1.0694.

Sterling was again the biggest loser, hovering close 15-month lows on the euro and rebounding only mildly from a 26-year trough on the Aussie, as analysts slash British growth forecasts after a run of dismal data. (Additional reporting by Chikafumi Hodo in Tokyo; Editing by Chris Gallagher)

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