FOREX-Euro dips from 14-month high but expected to stay firm

Thu Jan 31, 2013 7:22am EST

* Euro off 14-month high vs dollar but uptrend seen intact
    * German retail sales data and Deutsche Bank results weigh
    * Fed keeps bond-buying stimulus in place
    * Month-end flows seen keeping euro/dollar in a range

 (Adds details, quotes)
    By Jessica Mortimer
    LONDON, Jan 31 (Reuters) - The euro edged lower on Thursday,
dampened by weak German retail sales data and signs of a
slowdown in the U.S. economy, though it stayed near its recent
highs and was expected to continue climbing in the coming weeks.
    Traders said the euro was also influenced by month-end flows
which could trap it in a range and leave it below a reported
option barrier at $1.3600.
    The euro was down 0.1 percent at $1.3550,
though not far from Wednesday's high of $1.3588, its strongest
level since November 2011.
    Data showed retail sales in Europe's largest economy slid by
their largest amount in over three years in December, but this
was partially offset by solid jobs figures. 
    A huge fourth-quarter loss reported by Deutsche Bank
 also weighed on the euro, while the safe-haven dollar
rose against riskier, growth-linked currencies after data on
Wednesday showed the U.S. economy contracted in Q4 2012.
   
    "We had weak German retail sales data which is weighing on
the euro," said Chris Turner, head FX strategist at ING.
    "But it's only a dip and given the sharp move we have had,
this was bound to happen. As long as the ECB does not express
concern about the currency's strength, it will be tough for the
trend to turn."
    Any losses were seen limited, with bids cited below $1.3530
and option expiries reported at $1.3550. Despite Thursday's dip,
the euro has gained nearly 3 percent this month.
    The euro has gained broadly recently as easing euro zone
debt worries have prompted investors to reinvest in the region
after shunning it for much of last year due to concerns about
the risk of the bloc breaking up.
    "The euro could rise a few more percent from here," said
Richard Falkenhall, currency strategist at SEB in Stockholm.
    "People are not buying euros on growth prospects, the
(recent) rise is more because of investors increasing the
weighting of euros in their portfolios which they had cut last
year." 
    He said he expected the euro to rise to around $1.38 by the
end of the second quarter but said lingering concerns about
problems on the euro zone's periphery would keep it from rising
as high as $1.40.
    Against the yen, the euro was down 0.2 percent at
123.34 yen, off a 33-month peak of 123.87 yen set on Wednesday.
The single currency has gained 7.7 percent against the yen this
month.
    
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    The euro has also gained as banks have paid back ultra-cheap
loans to the European Central Bank, tightening monetary
conditions in the euro zone. This contrasts with the ultra-loose
policies in the United States and Japan.
    The U.S. Federal Reserve pledged on Wednesday to keep its
stimulus policy in place, saying the measures were needed to
lower unemployment, and a senior Bank of Japan official on
Thursday signalled more stimulus would be forthcoming if needed.
  
    European politicians have ramped up talk of a 'currency war'
as the euro has been the biggest beneficiary of the yen's and
the dollar's weakness. But ECB policymakers have maintained a
view that the euro is well within its long-term averages,
reflecting little desire to curb its recent strength.
    The dollar slipped 0.1 percent to 90.95 yen, having hit a
2-1/2 year high of 91.41 yen on Wednesday, its strongest
level versus the yen since June 2010. 
    Traders said reportedly large options expiries due later on
Thursday at 90.00 and 91.50 yen were likely to keep the dollar
within this week's range from 90.325 to 91.41 yen.
    Focus will now turn to U.S. jobs data on Friday for a take
on the health of the world's biggest economy. 

 (Additional reporting by Anirban Nag; Editing by Catherine
Evans)