* US dollar index rises from 10-month lows
* Extended positioning limit dollar's downside
* Uncertainty whether QE2 has been fully priced in
(Updates prices, adds quote, details, adds byline)
By Wanfeng Zhou
NEW YORK, Oct 18 The U.S. dollar was little
changed against the euro on Monday, erasing early gains, and
under pressure from the uncertainty arising over the size of
further monetary policy easing from the Federal Reserve.
The downside for the dollar looked limited from here,
however, as short dollar positions were extended and the euro
faced strong resistance at $1.40, analysts said.
Investors are more certain there will be more easing after
Federal Reserve Chairman Ben Bernanke on Friday offered his
most explicit signal yet that the U.S. central bank was set to
ease monetary policy further though the question remains the
amount. For details, see [ID:nN15187998]
"After the news (Bernanke comments) came out that the Fed
most likely will be engaging in some quantitative easing next
month, people took that as a sign to finish out their short
dollar trades," said Brendan McGrath, manager of business
solutions at Custom House, a Western Union company, in
Victoria, British Columbia.
The euro was 0.1 percent higher on the day at $1.3988
EUR=, but down from a more than eight-month high of $1.4161,
hit on trading platform EBS on Friday EUR=EBS. The session
low on Monday was $1.3830 on EBS.
Next downside targets are technical support at $1.3825 and
then the Oct. 12 low of $1.3775.
Traders said much of the day's action in the euro was
technical after the breach of the $1.3850 level wasn't
sustained. The rise from the low began in London trading.
Analysts also cited a narrowing of spreads between 10-year
U.S. and German yields in favor of the euro.
Investors "have not really changed their positive
underlying view of the euro," said Joseph Trevisani, chief
market analyst at FX Solutions in Saddle River, New Jersey.
Data from the U.S. Commodity Futures Trading Commission
showed speculators trimmed bets against the dollar in the
latest week but still had hefty wagers against it. [IMM/FX]
Graphic on net U.S. dollar long positions
The dollar index .DXY was little changed at 77.032, after
rising to 77.645. The rally needs to extend above its Oct. 12
high of 77.93 to signal a short-term bottom is in place after
Friday's 10-month trough of 76.144, analysts said.
The index has lost nearly 5 percent in the past month as
investors increased their bets against the dollar on heightened
market expectations for the Federal Reserve to unveil a second
round of quantitative easing as early as November.
Atlanta Federal Reserve bank president Dennis Lockhart said
on Monday, the U.S. economy is weak enough to warrant further
monetary easing by the Federal Reserve, though such a policy
carries risks and should not be taken lightly.[ID:nN18167666]
This compounded the calls by two more Fed officials over
the weekend, who joined Bernanke in arguing for further
aggressive action as U.S. inflation unexpectedly slowed in
September even as retail sales picked up.[ID:nN16208445]
The dollar ceded ground against the yen, falling 0.3
percent to 81.21 yen JPY= and edging back toward a 15-year
low of 80.88 hit on EBS last week JPY=EBS. Traders reported
sovereign demand around the 81.15 level.
The Australian dollar recovered from the day's declines and
was last up 0.1 percent to $0.9915 AUD=D4. The Aussie rose to
$1.0004 on Friday, but hit a low of $0.9801 on Monday after
some macro funds sold, with traders citing decent stop-loss
orders at $0.9780.
(Additional reporting by Nick Olivari)
(Editing by Theodore d'Afflisio)