The euro fell against the dollar on Friday, retreating from the top of its recent trading range as a lack of visible progress on a Spanish bailout request reminded investors of the headwinds facing Europe. Expectations that Spain will ask for a bailout had helped the euro rally to a one-month high this week, but uncertainty about when such a request might come has made investors wary.
European leaders moved closer to establishing a single euro zone banking supervisor at a summit on Thursday, but talked little about the problems facing debt-ridden Spain and Greece. A bailout request from Spain would enable the European Central Bank to buy Spanish bonds and drive down Madrid's borrowing costs. That would probably increase investor appetite for perceived riskier currencies against the safe-haven dollar.
"We are feeling the effects of no real catalysts, indecision within the EU, and a large technical range," said Marc Principato, director of SMB Forex Trading And Education in New York. "The euro/dollar is still trading within the 1.2800 to 1.3160 range, and I believe will continue to do so until after the US election." The euro was last 0.3 percent lower on the day at $1.3021; it hit a one-month high of $1.3139 on Wednesday. It has traded in the same range since mid-September. On the week, it was up 0.5 percent against the dollar
Traders reported bids around $1.3000 to $1.3020 that could provide support. "We are missing the decisive news that might push us out of this range. It is most likely going to be some political news like a move from Spain," said Ulrich Leuchtmann, head of FX research at Commerzbank in London. Against the yen, the euro slipped 0.3 percent to 103.25, after touching a five-month peak on Thursday, and was up 1.6 percent this week.
Strategists said many remained cautious and were looking to profit by selling the euro near the top of the range. "Our survey of euro/dollar positioning suggests a market betting on a wide range-trading environment strategically, while tactically looking to sell euro/dollar on rallies," Societe Generale strategist Sebastien Galy wrote in a client note from London.
Other analysts said the euro's rally since late September was overdone given the weak economic outlook for the euro zone. The dollar traded up 0.1 percent 79.31 yen, near a two-month high set on Thursday. It gained 1.1 percent this week, the best weekly performance in two months.
Speculators have recently sold the yen on expectations the Bank of Japan will take another easing step at its policy meeting on October 30, following up on its easing last month. However, the dollar's advance is likely to slow as Japanese exporters are waiting to sell, and immediate resistance is seen at its August peak. A report showing US home resales fell in September, a reminder that America's housing sector is a long way from a full recovery, weighed on the euro in the New York session and helped bolster the US currency against the yen.
Currency speculators boosted their bets against the US dollar in the latest week, according to data from the Commodity Futures Trading Commission released on Friday. The value of the dollar's net short position rose to $8.14 billion in the week ended October 16 from a net short position of $6.43 billion the previous week. The Australian dollar fell 0.4 percent to $1.0323, off a three-week high touched on Thursday.
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