October 26, 2017 / 7:31 AM / a month ago

FOREX-Euro perched at 1-week highs before ECB vote

* Dollar pauses after recent rise

* Graphic: World FX rates in 2017 tmsnrt.rs/2egbfVh

By Saikat Chatterjee

LONDON, Oct 26 (Reuters) - The euro held near a one-week high on Thursday before a European Central Bank meeting where policymakers are expected to outline a scaling back of bond-purchase, with analysts expecting a pause in the euro’s rally in the absence of any hawkish surprises.

With the ECB likely to announce that it will start trimming its asset purchases to half from its current 60 billion euros from January, markets will look for any tweak in language or forward guidance to push the euro higher.

“In the current environment, it will take a surprising shift in policy stance to push the euro higher from these levels even though we remain constructive of the currency’s outlook in 2018,” said Christin Tuxen, an FX strategist at Danske Bank.

The euro climbed 0.1 percent against the dollar on Thursday to $1.1825, holding near its highest levels since last Friday.

Long euro/dollar has been among the best performing currency trades this year with the pair up nearly 13 percent so far this year though the single currency has come under some pressure in recent weeks on concerns interest rates in the ECB will remain at record lows far longer than the U.S.

Latest CFTC positioning data shows that net euro longs have retreated from their record highs though still remain near multi-year highs at above $13 billion.

BNP Paribas strategists say the distribution of various ECB decision scenarios point to euro downside as its positioning indicator suggests that market positioning remains quite stretched in favor of euros.

“The ECB meeting could thus represent a Q4 high water mark for the euro,” they said in a daily note.

The dollar took a breather after having rallied over the past week on optimism over the prospects for U.S. tax reforms, as well as speculation that the next chair of the Federal Reserve could steer policy in a more hawkish direction.

The dollar index, which measures the greenback’s value against a basket of six major currencies, slipped 0.1 percent to 93.612, edging away from a two-week high of 94.017 set on Monday.

The dollar has been bolstered recently by optimism about the prospects for a tax-cut plan, and as investors pondered the possibility that Stanford University economist John Taylor could become the next Fed chief.

U.S. President Donald Trump is expected to announce his Fed chair candidate before his Asian trip in early November.

Against the yen, the dollar was broadly flat at 113.67 yen .

For Reuters Live Markets blog on European and UK stock markets see reuters://realtime/verb=Open/url=http://emea1.apps.cp.extranet.thomsonreuters.biz/cms/?pageId=livemarkets (Reporting by Saikat Chatterjee; Additional reporting by Masayuki kitano in SINGAPORE; Editing by Toby Chopra)

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