July 21, 2014 / 5:16 AM / in 4 years

FOREX-Euro stays afloat in tentative trade amid geopolitical concerns

* Markets becalmed for now, geopolitical risks still a threat

* Euro attempts to extend Friday’s rebound

* Holiday in Japan saps currency markets

By Ian Chua

SYDNEY, July 21 (Reuters) - The euro regained more ground on the dollar in Asia on Monday, having rebounded from a five-month trough, but trading was anything but energetic thanks to a holiday in Japan and amid concerns that geopolitical tensions could flare up at any time.

The common currency drifted up 0.2 percent to $1.3546 , extending Friday’s bounce from a five-month low of $1.3491.

Solid support is seen at $1.3460/80, an area that had provided a floor on several occasions for the common currency in the past 10 months or so.

“The Japanese holiday has quietened things in Asia,” said Mitul Kotecha, head of FX strategy at Barclays in Singapore.

“There is not a great deal of first-tier data either and investors have one eye on geopolitical events, all of that is a recipe for generally lacklustre trading.”

The downing of a Malaysian airliner in eastern Ukraine last week and fighting in Gaza continued to dominate the headlines, although markets were becalmed for now.

“Our sense remains that at least for the moment, markets will likely continue to treat geopolitical events as localized risks and not ”macro“ destabilising events,” analysts at JPMorgan wrote in a note to clients.

The dollar index eased 0.1 percent to 80.431, continuing to pull back from a one-month peak of 80.687 set on Friday.

The calmer mood kept the safe-haven yen pinned down. The greenback was at 101.22 after pushing up from a one-week low of 101.09. The euro stood at 137.10 yen, off a five-month trough of 136.71.

Sterling was none the worse for wear at $1.7099, having recovered from a fall to a three-week low of $1.7037 on Friday.

Barclay’s Kotecha said he is still generally bearish on the euro.

“Overall, we still believe the euro is going to face more downside pressure. The chances are we’re going to see more aggressive action from the ECB in coming months,” he said.

“We prefer selling the euro versus the yen and sterling.”

The Antipodean currencies also recovered some of their recent losses, with the New Zealand dollar popping above 87 U.S. cents from Friday’s low of $0.8649.

The kiwi had suffered its biggest weekly fall in about six months and markets are turning just that bit cautious ahead of a widely expected interest rate hike on Thursday.

New Zealand’s central bank is widely expected to lift its cash rate to a 5-1/2 year high of 3.5 percent.

The market is divided on whether the bank might signal a pause given the high currency, restrained inflation and falling dairy prices. Any sign of an extended hiatus could prompt kiwi bears to renew their attack, traders said.

There are no major data out of Europe on Monday, leaving the focus on flash PMI reports due on Thursday. In Britain, minutes of the Bank of England’s July meeting, retail sales and second quarter gross domestic product data will take centre stage later in the week. (Editing by Shri Navaratnam)

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