(Corrects para 1 to dollar index at 1-week low, not 7)
* Dollar under pressure ahead of Bernanke testimony
* Hopes for more easing rise after weak US retail sales
* Euro, Aussie bounce off lows as risk appetite a bit up
By Antoni Slodkowski
TOKYO, July 17 The euro rose versus the dollar
on Tuesday as purchases from hedge funds triggered a flurry of
stop-loss buying, pulling the greenback to a one-week low
against a basket of currencies, exacerbating its losses after
poor U.S. retail sales figures.
In line with a mild increase in risk appetite across Asia on
hopes for more monetary stimulus from the world's largest
economy, the euro and the Australian dollar bounced off recent
lows and also pushed higher versus the yen.
The euro gained 0.2 percent to 96.98 yen, while
the Aussie was at 81.25 yen.
"We're seeing hedge funds from Singapore coming in and
scooping up the euro and the Aussie against the yen," said a
senior spot trader for a major Japanese bank, adding that the
move was mostly flow-driven and not tied to any particular news.
The rise against the Japanese currency helped the euro
muscle in on the greenback. The common currency climbed to a one
week high at $1.2314, having triggered stop-losses at
1.2300. It then settled around 1.2285.
The dollar was also stuck near one-month lows against the
yen as Tokyo markets reopened after a holiday. A threat of
intervention by the Tokyo authorities and weakness versus other
currencies helped halt the yen's advance on the greenback.
Traders are focusing their attention on the world's largest
economy ahead of the Federal Reserve's Chairman Ben Bernanke
testimony before Congress on Tuesday and Wednesday.
"The sell-off in the U.S. dollar and U.S. equities tell us
that investors are positioning for slightly more dovish comments
from Bernanke," said Kathy Lien, Managing Director of FX
Strategy for BK Asset Management.
"However, outside of overtly signaling the possibility of
more stimulus, there's not much Bernanke can say or do that he
hasn't already," said Lien.
The dollar stood at 78.92 yen, barely changed from
late New York levels. Its support now rests at a June 15 low of
78.61 yen, while resistance looms at its 200-day moving average
at 79.05. Traders reported a large bid supporting the pair at
The Fed last month expanded efforts to keep long-term
interest rates low by announcing it would buy an additional $267
billion in long-term bonds while selling short-term securities
in a measure known as Operation Twist.
The central bank, however, held off from launching a third
round of outright bond purchases that would expand its balance
sheet, a form of stimulus known as quantitative easing.
Analysts said that despite a nudge higher on Tuesday, the
euro has become the funding currency of choice after both German
and Dutch two-year bond yields turned
The strength of Germany's economy has made its highly-liquid
bonds a major safe haven from the euro zone's sovereign debt
crisis and Dutch bonds have also enjoyed similar demand.
With the dollar on the defensive, the common currency
reversed some of its losses sustained versus the dollar after
weak U.S. retail sales, but Lien cautioned it was not the start
of a strong uptrend.
"The rally in the euro had nothing to do with the outlook
for the euro zone because the EUR/USD was trading in negative
territory before the U.S. retail sales report," she said.
Even though the euro managed to eke out modest gains against
the dollar on the back of its rise versus the yen, it was still
close to a two-year low of 1.2162 hit last week.
Germany's Constitutional Court said on Monday it would not
rule until Sept. 12 on whether the euro zone's bailout fund --
the European Stability Mechanism -- and planned changes to the
region's budget rules are compatible with German
A report suggesting a change in the European Central Bank's
stance on how some bondholders could be treated under Spain's
bank bailout has put pressure on the single currency.
The Aussie dollar was supported by after minutes showed that
Australia's central bank saw "no need" to cut interest rates at
its July meeting because a material easing had already been
delivered and data showed the domestic economy had more momentum
than first thought.
(Additional reporting by Lisa Twaronite and Masayuki Kitano;
Editing by Kim Coghill)