The dollar hovered near its highest level in nearly a month against the euro on Monday as prospects for the greenback improved after upbeat US jobs data last week made further monetary stimulus from the Federal Reserve less likely. The dollar also hit its highest in nearly 7 weeks against a basket of currencies and analysts expect it to be supported if data showed more signs of a sustained US economic recovery.
On the other hand, the euro was expected to struggle in the coming weeks as relief at Greece's debt restructuring gave way to concerns over euro zone growth and risk of contagion. Traders said investors were looking to sell the euro into a bounce, with the upside capped near its March 7 high of $1.3165. The euro was steady at $1.3105, having earlier dipped to $1.3079 on trading platform EBS, its lowest level since February 16. Stops were cited at $1.3150 with option expires at $1.3100 likely to sway trade in the near term.
---- Dollar index hits highest since January 25 The euro's low coincided with solid support at the 55-day moving average, though one trader said a close below $1.3080 could prompt some hedge funds to increase short euro positions. Below there further chart support stood around $1.3055, the 50 percent retracement of its January to February rally.
The dollar index rose to 80.132, its highest since January 25, before slipping back to 80.012. The rise in the index came after Friday's US jobs data showed employers added more than 200,000 workers for a third straight month in February, a sign the recovery was gathering pace. "Less QE (quantitative easing) in the US is positive for the dollar ... I think the dollar will do better against the yen, euro and sterling," said RBS currency strategist Paul Robson. "In Europe the weakest data is in the countries with the weakest fiscal position, which is worrying and it's still a case of selling euros on any rallies."
The dollar slipped 0.2 percent against the yen to 82.22 yen on profit-taking after it hit a near 11-month high of 82.65 yen on Friday. US bond yields rose on the upbeat jobs data, boosting the dollar's appeal versus the low-yielding yen. The euro struggled against the yen and the dollar as traders switched their focus from Greece to the next peripheral euro zone country that may have to restructure its debt obligation.
A focal point for the market this week will be policy decisions by the Bank of Japan and the US Federal Reserve, both of which are due on Tuesday. The BoJ's monetary policy has been in the spotlight since its surprise easing in February. Most traders expected the BOJ to refrain from further easing though some saw a risk of action that would spark a sell-off in the yen.
Dollar/yen one-month implied volatilities rose to 11.10 percent from around 10.7 percent on Friday on steady demand for protection against huge swings. Traders cited option barriers at 83 yen while dollar/yen risk reversals continued to show a bias for yen weakness.
Meanwhile, the Australian dollar was down 0.5 percent at $1.0515 after China reported a $31.5 billion trade deficit, confounding forecasts of a $5 billion shortfall and raising concerns about the outlook for the world's second largest economy. Morgan Stanley strategists recommended selling the Australian dollar amid concerns about global growth and waning expectations of more easing by major central banks. They have entered the trade at $1.0570 with stops at $1.0670 for a targeted drop to $1.0150.
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