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 The euro had stabilized a touch in an Asian session weakened by a
holiday in Singapore. But it was still trading just above an
eight-month trough. Another half-cent fall would take it to its
lowest since September of last year.
Two strong weeks running for the dollar have encouraged the belief
that the U.S. currency is finally ready to make good on forecasts
for a long-awaited recovery as economic growth in the United States
easily outpaces that in mainland Europe.
But the scale of the dollar's moves - a 2 percent rise against the
euro this month - also increases the odds of some players cashing in
some of those gains.
"We think the euro/dollar move may pause for breath at the start of
this week before another shift lower at the end of the week," said
Adam Myers, head of European currency strategy at Credit Agricole in
London.
"The market is clearly short on the euro but there doesn't quite
seem to be the fuel over the next day or two to drive it much lower
and that may squeeze some of those positions."
Euro zone inflation, already uncomfortably near zero for European
Central Bank policymakers, is due on Thursday and will be preceded
by German regional and national numbers.
The other big number is U.S. non-farm payrolls on Friday, with
expectations for Wednesday's Federal Reserve statement dampened by a
series of appearances by chair Janet Yellen and other policymakers
in recent days.
In morning trade in Europe, the euro was less than 0.1 percent
higher at $1.3438.
"The short EUR/USD trade will likely continue to be a slow burner
given the current bearish market positioning in euros," said Kit
Juckes, a strategist with Societe Generale in London.
"The consensus is not always wrong, but consensus trades generally
require patience. We remain bearish EUR/USD, and any rally should be
sold into."
YELLEN
Numbers on Wednesday are expected to show the U.S. economy grew at a
3.2 percent annual pace in the second quarter, up from 2.9 percent
in the first. Non-farm payrolls are expected to show a rise of
231,000 in July after they increased 288,000 in June.
Yellen said this month that the Fed could raise rates sooner than
initially expected if labor markets continued to improve. Most
economists expect the U.S. central bank to start raising interest
rates in the second half of next year.
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The dollar index was marginally lower at 81.000, after it peaked at
81.084 on Friday, a high not seen since early February. So far this
month, it has rallied around 1.6 percent, on track for its best
monthly gain since January.
Against its Japanese counterpart, the dollar was steady at 101.81
yen.
The latest figures from the Commodity Futures Trading Commission
showed currency speculators increased their bullish bets on the
greenback in the week ended July 22.
U.S. Treasury yields, however, remained pinned near recent lows,
with the yield on the benchmark 10-year U.S. Treasury note at 2.478
percent in Asia, not far from its U.S. close of 2.469 percent on
Friday. The fact that the 10-year yield remains well below 3 percent
suggests that investors betting on the dollar were not driven by any
material change to the U.S. economic outlook.
Analysts at Barclays said this week's U.S. data could challenge that
perception.
"Overall, we expect a relatively upbeat set of data releases, which
ought to give the U.S. dollar further support over the week," they
wrote in a report to clients.
"We do not expect the Fed to deliver any major surprises, with
further tapering of $10 billion likely to be announced."
(Additional reporting by Lisa Twaronite in Tokyo; Editing by
Catherine Evans)
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