5 July 2004, 10:13  Dollar struggles vs euro, pares losses vs yen

The dollar smarted on Monday after taking a beating on Friday due to unexpectedly weak U.S. jobs data, but currencies moved in narrow ranges ahead of a market holiday in the United States. As the dust from last week's barrage of crucial economic events and data began to settle, the dollar remained under pressure versus the euro, but recouped some of its losses against the yen thanks to easing Japanese stock prices. While some analysts said the dollar pairings would move sideways for the time being given a shortage of market-moving events and data this week, others argued that there was room for more dollar losses. "It may well be reasonably quiet today given the holiday but the numbers on Friday were quite a shock," said Jake Moore, forex strategist at Barclays Bank. "There are a lot of people looking to short the dollar on the back of the Fed hiking rates (at a measured pace). People see that as being dollar bearish," he added. The U.S. currency plunged more than one percent against the yen and almost 1.5 percent versus the euro on Friday after U.S. data showed that 112,000 new jobs were created in June, far below market forecasts for an increase of 250,000.
May's payrolls were also revised down to 235,000 from 248,000. The data supported expectations that the Federal Reserve would increase interest rates at a "measured pace", as it had said last week after raising rates by 25 basis points from a 46-year low of 1 percent -- the first increase in four years. Another factor working against the dollar was its inability to push past key resistence levels. "That the dollar hasn't been able to get past technical resistence levels in the upper 109 level is a sign that the dollar's upside could be coming down a bit," said Tohru Sasaki, chief forex strategist at JP Morgan. At 0530 GMT, the dollar was at 108.78 yen , up from around 108.32 yen in late New York trade. It fell as low as 108.05 yen over the weekend. Market players expect the dollar to move between 107 and 109.5 yen this week. The euro was fetching $1.2319 , gaining a touch from $1.2314 in late U.S. trade. The euro earlier hit a 3-Ѕ week high around $1.2330. Despite its recent gains, analysts said the euro's rise would be capped as euro-zone interest rates were unlikely to rise anytime soon. Some pointed out that interest in safe-haven euro buying had been drying up since the transition of power in Iraq.
As a result, the market was tuned into whether the euro would test $1.2350, a key level that, if breached, could send the euro as high as $1.25 before staging a correction, analysts said. The single European currency was at 134.05 yen , firming from Friday levels. Dealers said that euro/yen buying by Japanese investors since Friday also helped to buoy the dollar/yen. The Nikkei stock average <.N225> ended trading down 1.53 percent, after losing 1.47 percent on Friday. U.S. financial markets are closed on Monday for the U.S. Independence Day holiday.
HUNTING NEW FACTORS
After focusing heavily on fundamentals ahead of last week's parade of events and data, which included the U.S. rate decision, U.S. jobs data and Japan's "tankan" survey of business sentiment, the market has started to look for new factors to trade on, some dealers said. "Yen buying based on expectations for Japan's economic recovery alone has limits and now the market is looking for fresh data after the tankan for follow-through yen buying," said Mitsuru Sahara, a forex trader at UFJ Bank. Some analysts said the yen could encounter problems ahead of upper house elections in Japan on Sunday. Some yen selling could occur if the main opposition Democratic Party outperforms the ruling Liberal Democratic Party (LDP), a possibility given media polls showing public support for Prime Minister Junichiro Koizumi plunging to all-time lows. "It seems the LDP is struggling ahead of the election and this could put pressure on the yen," said Sasaki at JP Morgan. "Considerable LDP losses would spark yen selling, although I can't see that lasting for very long." ///

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