By William Kemble-Diaz
Of DOW JONES NEWSWIRES
LONDON -(Dow Jones)- The dollar recovered some ground in European trading Monday as traders revisited the potential for more U.S. monetary easing ahead of a busy week of economic data, while the pound added to its recent gains.
The Australian dollar was slightly weaker ahead of an expected interest rate cut.
Strategists said the underlying tone of the market remained positive after its reaction Friday to U.S. data that showed the world’s biggest economy grew just 2.2% in the first quarter.
Rather than lift the buck, which often happens when investment sentiment turns cautious, traders piled into growth-sensitive currencies deemed riskier, such as the Australian, Canadian and New Zealand dollars. This suggests the market is more fixated on the possibility of more U.S. easing than worried about global economic conditions.
“What it shows is that, although the data in the U.S. may disappoint this week, that doesn’t mean that risk appetite won’t remain buoyant,” said Michael Sneyd, a currency strategist at BNP Paribas.
“It probably means that the dollar is going to end the week slightly softer,” he said, citing U.S. manufacturing and services sector data due Tuesday and Wednesday and the U.S. employment report on Friday.
The euro slipped but remained above $1.32 against the dollar after data provided more evidence that the European Central Bank’s extraordinary bank refinancing operations are still not trickling down to the real economy, with bank lending growth to the private sector slowing to 0.6% in March from a 0.8% pace in February.
Against the pound it fell to a fresh 22-month low of 0.8125, hurting U.K. exporters and creating a headache for the Bank of England as it struggles to breathe life into the recession-hit U.K. economy.
Sterling suffered a little vertigo against the dollar after a brief foray above $1.63 for the first time in eight months.
Sneyd said it looked like a case of too much too soon for the currency, citing internal client flow data that could yet drive the pound back down as traders reversed pro-pound bets.
The Australian dollar also drifted back down against the greenback amid widespread expectations for an Australian interest rate cut of at least a quarter percentage point and possibly double that.
Analyst Todd Elmer of Citigroup said he was inclined to buy into any Australian dollar weakness, whatever the RBA did.
“In the present context, with risk appetite generally well-supported, this means it should be difficult to sustain any decline in the Australian dollar,” Elmer said.
In emerging markets, the Hungarian forint made fresh seven-month highs against the euro as traders pinned their hopes on a potential loan deal between the country’s government and the European Union and International Monetary Fund.
The Romanian leu hit a new low against the euro above RON4.40 after Romania’s government lost a confidence vote on Friday.
At 1052 GMT, the euro was trading at $1.3220 against the dollar, compared with $1.3252 late Friday in New York, according to trading system EBS. The dollar was at Y80.170 against the yen, compared with Y80.26, while the euro was at Y105.974 compared with Y106.38. The pound was trading at $1.6258 against the dollar, compared with $1.6260 late Friday in New York.
The ICE Dollar Index, which tracks the dollar against a trade-weighted basket of currencies, was trading at 78.856, compared with 78.710 late Friday in New York. It hit a two-month low in early European trade.
A summary of key levels for chart-watching technical strategists is below:
Forex spot: EUR/USD USD/JPY GBP/USD USD/CHF
Spot 1033 GMT 1.3213 80.17 1.6281 0.9063
3 Day Trend Bullish Bearish Bullish Bearish
Weekly Trend Bullish Bearish Bullish Range
200 day ma 1.3396 79.70 1.5852 0.9083
3rd Resistance 1.3338 81.45 1.6355 0.9172
2nd Resistance 1.3297 80.75 1.6321 0.9134
1st Resistance 1.3277 80.40 1.6302 0.9114
Pivot* 1.3227 80.64 1.6233 0.9086
1st Support 1.3190 80.08 1.6259 0.9051
2nd Support 1.3157 79.75 1.6208 0.9002
3rd Support 1.3104 78.80 1.6156 0.8931
Forex spot: EUR/GBP
Spot 1034 GMT 0.8129
3 Day Trend Bearish
Weekly Trend Bearish
200 day ma 0.8449
3rd Resistance 0.8221
2nd Resistance 0.8184
1st Resistance 0.8150
1st Support 0.8100
2nd Support 0.8067
3rd Support 0.8000
(Technical analyst Francis Bray contributed to this article)
– By William Kemble-Diaz, Dow Jones Newswires; 44-20-7842-9347; firstname.lastname@example.org; @djfxtrader