April 9, 2012 / 9:00 PM / 7 years ago

FOREX-Euro up in thin trade, jobs data fan QE3 talk

* Bank of Japan policy meeting poses risk for yen
    * Net short positions in yen still large
    * Holiday in much of Europe keeps trading thin
    * Options reflect abating unease about euro prospects

    By Luciana Lopez	
    NEW YORK, April 9 (Reuters) - The euro rose against the
dollar and the yen on Monday in thin trading as disappointing
U.S. jobs data last week kept alive market expectations of more
easing from the Federal Reserve, with analysts eyeing a slew of
Fed speakers later in the week.	
    Data on U.S. jobs creation came in sharply lower than
expected on Friday. While foreign exchange markets were open,
the Good Friday holiday had made for particularly light volume.	
    When the data were released, "the first thing to hit the
market was a sense of pessimism," said Karl Schamotta, senior
markets strategist with Western Union Business Solutions. The
worse-than-expected figures boosted fears the world's biggest
economy might not be recovering quickly enough.	
    "The second impact that it's having is really putting QE3
back on the table in the minds of many traders," he added. 	
    With many European markets still closed on Monday -
including London, a major currency trading hub - analysts said
the dollar was unlikely to hit significant new levels.	
    "The dollar is range bound, and there's no threat of
breaking out of those ranges just now," said Michael Woolfolk,
senior forex strategist with BNY Mellon in New York.	
    Traders will instead look to events later in the week for
guidance, including several speakers from the U.S. Federal
Reserve. Policymakers are likely to keep a steadily dovish tone,
Woolfolk said.	
    "They're going to make it abundantly clear that QE3 never
left the table to begin with, and not surprisingly it's very
much on the table right now," he said.	
    Speculation about the Fed's plans - such as whether they
might kick off another round of quantitative easing, typically a
dollar negative - is likely to be a major focus for awhile yet.	
    "The dollar debate is where the center of FOMC gravity now
is with respect to further stimulus and what degree of economic
weakness it would take to get stimulus back on the agenda," said
Steven Englander, head of G10 strategy at CitiFX, a division of
Citigroup in New York.	
    Barclays said it does not believe the weak employment report
will be enough to push the Fed into action at its next policy
meeting on April 24-25.	
    "That said, the door for further accommodation remains open,
and the decision point may shift to June as the FOMC continues
to monitor incoming data," the bank said.	
    The euro traded as high as $1.3133 before more recently
trading up 0.11 percent to $1.3108, according to Reuters
data. The single currency also rose 0.07 percent to 106.84 yen
, turning around earlier losses.	
    Unease about prospects for the euro has abated somewhat as
reflected in the options market, with three-month risk reversals
in the euro/dollar still biased for euro puts, trading at -2.1
vols on Monday, but improving from -3.5 vols in
    Euro/yen three-month risk reversals remained biased for euro
puts, trading at -3.55 vols, nonetheless down
from -3.68 vols in early March.	
    The dollar seesawed against the yen, most recently dipping
0.12 percent to 81.52 yen.	
    The greenback could drop to around 80.00 yen in the next
week or two, especially when taking into account current market
positioning, said Daisuke Karakama, a market economist for
Mizuho Corporate Bank in Tokyo.	
    "When you look at short positions in the yen, they haven't
really decreased, and their size is still comparable to levels
seen back in the summer of 2007," Karakama said, adding, "You
have to think about whether that is sustainable or not."	
    One risk for the yen this week is the Bank of Japan's
two-day policy meeting that ends on Tuesday. The central bank's
policy has been under the spotlight since its surprise monetary
easing in February triggered a broad fall in the yen.	
    The BOJ is seen holding fire, however, until it unveils its
long-term economic and price forecasts on April 27.
    The latest data from the U.S. Commodity Futures Trading
Commission shows currency speculators slightly trimmed their net
short positions in the yen in the week ended April 3 to 65,108
    That was still close to the previous week's 67,622
contracts, which was the biggest net short position in the yen
since July 2007.
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