Categorized | Forex

FOREX-Euro rally pauses, more gains seen ahead

FOREX-Euro rally pauses, more gains seen ahead

* Euro eases versus dollar but pullback seen temporary

* Market players say move to $1.27 is in sight

* Euro zone policymakers seen making slow progress

By Nia Williams

LONDON, Aug 24 (Reuters) – The euro eased against the dollar on Friday as some investors took profits on Thursday’s rally to a seven-week high, although lingering optimism that policymakers are moving closer to tackling the debt crisis limited losses.

Sources told Reuters on Thursday Spain is in talks with euro zone partners over conditions for aid to bring down its borrowing costs, though the country has not made a final decision to request a bailout.

While this implied there would be no rapid progress in resolving Spain’s debt problems, some strategists said the talks should be positive for the euro as they could open the door for the European Central Bank to intervene in the bond market.

The euro has rallied strongly this week on persistent speculation the ECB will unveil plans to help lower Spanish and Italian bond yields at its next policy meeting on Sept. 6.

It was last trading at $1.2534, down 0.2 percent on the day and retreating from Thursday’s peak of $1.2590, its highest since early July.

“After three particularly good days it would not surprise me today if we have a bit of a pullback to get better levels to buy in,” said Daragh Maher, currency strategist at HSBC.

“The market still seems to be a bit more optimistic – or at least a bit less pessimistic – on the euro and we’ve been getting a slow but relentless closing of shorts.”

Maher said with little obvious near-term technical resistance the euro could extend its short squeeze higher to $1.27 before the next ECB meeting, as investors who earlier bet against the single currency closed their positions.

Market players also awaited a meeting between Greek Prime Minister Antonis Samaras and German Chancellor Angela Merkel on Friday, although any flexibility on Greek austerity measures is unlikely to be discussed before September.

Some strategists said the euro was likely to struggle to find direction in the next week as investors braced themselves for crucial developments next month.

“Various potential pitfalls for the euro are coming up, so people want to sell when it rises. They sell and then buy back, sell and then buy back,” said Satoshi Okagawa, senior global markets analyst for Sumitomo Mitsui Banking Corporation.

After the ECB meeting on Sept.6, there are Dutch elections and a German Constitutional Court ruling on the euro zone rescue fund on Sept. 12 and an EU finance ministers’ meeting starting on Sept. 14.

FED POLICY EYED

Before that, U.S. monetary policy will be in focus at the annual conference of central bankers and economists at Jackson Hole, Wyoming on Aug. 31, where Federal Reserve Chairman Ben Bernanke will give a speech.

The dollar came under pressure this week after Fed minutes suggested the U.S. central bank may opt for more monetary stimulus “fairly soon”.

However, St. Louis Federal Reserve President James Bullard, who does not vote on the Fed’s policy committee, said the minutes were a bit stale given stronger data since the Fed’s last policy meeting.

The dollar rose 0.2 percent to 78.66 yen. The dollar index climbed 0.15 percent to 81.479 after sliding on Thursday to a two-month low of 81.221.

The Australian dollar fell to a four-week low against the U.S. dollar of US$1.0378, hurt by concerns over slowing growth in China.

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