FOREX-Euro retains gains





The euro's rebound from a 2-½ month low stalled on Friday, though it retained most gains made after talk of European Central Bank buying of euro zone periphery debt helped knock down those yields.

The immediate focus of the market moved to U.S. payrolls data later in the day, with a surprisingly strong U.S. housing number adding to budding optimism on the U.S. economy.

The euro nestled at $1.3220 EUR=, little changed on the day and floating well above a 2-½ month low of $1.2969 plumbed on Tuesday in the wake of massive selling in euro zone periphery government bonds.

"I suspect the euro has bottomed out in the near term and will test $1.33-34," said a trader at a Japanese brokerage house.

Its 100-day moving average, at around $1.3327, is seen as the next resistance level. More important resistance lurks in the $1.3334-64 area, its August peak and a 38.2 percent retracement of its June-November rally.

Traders said the ECB was buying Portuguese and Irish debt on Thursday, calming investor panic over euro zone debt for now, helping the single currency.

The sharp fall in the yields of Spanish, Portuguese and other countries' bonds offset initial disappointment after ECB President Jean-Claude Trichet did not explicitly commit the bank to ramping up bond buying. [ID:nLDE6B10I4]

As widely expected, the ECB extended nonstandard provisions, committing to provide unlimited one-week, one-month and three-month funding for vulnerable banks until at least April.
Traders are now looking to the U.S. jobs data, due at 1330 GMT, which is expected to show an increase of 140,000 jobs last month, according to a Reuters survey.

Although data on Thursday showed initial jobless claims rose more than expected, anecdotal evidence of strong holiday sales and a surprise jump in the house sales index on Thursday are boosting investor risk appetite.

Some traders said a strong U.S. jobs figure is likely to encourage more risk appetite, which could help the euro.

But others said it would likely be the U.S. dollar that benefits from a strong number this time given the perception that the growth outlook is much more positive for the United States compared to the euro zone, whose debt woes are far from solved.

"Many investors outside Europe, including Asian investors, may still want to reduce euro zone government debt holdings," said another trader at a Japanese bank, noting that there has been persistent selling in euro/yen in recent days.

Euro/yen dipped 0.1 percent in early Friday to 110.58 yen EURJPY=R. Though it kept some distance from a 2-½ month low of 108.33 yen marked earlier in the week, it could face strong resistance around 111.65 yen, where its 14-day and 90-day moving averages are converging.

The dollar changed hands at 83.72 yen JPY=, down 0.1 percent from late U.S. levels and off Monday's two-month high of 84.41 yen. Strong support is seen at the top end of the pair's ichimoku cloud at around 83.18.

While option triggers at 84.50 and 85.00 as well as offers from Japanese exporters are seen hampering the dollar's advance, if the payroll data boosts U.S. bond yields further, that could help the dollar test those resistance levels, traders said.

The 10-year U.S. bond yield US10YT=RR rose above 3 percent on Thursday on an improving U.S. economic outlook. Two Fed officials also said on Thursday that the second bout of quantitative easing that began last month is subject to regular review. [ID:nN02241796]

The Australian dollar hovered at around $0.9765 AUD=D4, flat on the day and still up more than two percent from Wednesday's two-month low of $0.9536.

Its 55-day moving average, which comes in at around $0.9803, could be seen as a possible target. (Additional contribution from Reuters FX analyst Rick Lloyd in Singapore