LONDON (AFX) - The euro was softer in early trade as the speculative side of the market continued to unwind long positions to take profits, dealers said.
In the euro's recent rally, speculative funds had amassed long positions, creating the risk of a correction in the single currency's exchange value, they added.
"The unwinding had already been seen earlier and appears to be continuing," Steven Pearson, economist at Halifax said. It would amount to profit taking and there is a lot more unwinding to be done, he added.
The past few days had seen improvement in fundamental flows in favour of the euro but the effect may have been seasonal, he said. The Euro-zone balance of payment data was favourable. The portfolio balance reported a net monthly inflow of 27.7 bln eur in June, which more than compensated the 7.9 bln eur FDI outflow.
But data out of the US is more likely to turn for the better in September. Both mean pressure on the euro in the near future, Pearson said.
This morning's very favourable German PPI and import prices will support expectations for a rate cut on August 30 or September 13. However, the market has fully priced this in, Micheal Klawitter, economist at West LB said, adding that euro-dollar is likely to trade sideways for now.
But the US dollar had its own problems - for one, the announcement by the US National Association of Manufacturers to start a campaign against the dollar's overvalued status, he added.
Sterling took its cue from the euro to ease against the dollar but was rangebound otherwise.
The combination of record unemployment and falls on the Nikkei weakened the yen slightly but a lack of clear direction in the currency markets will often see the yen strengthen as a result of general trade flows, dealers said.