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NEW YORK: The euro ground higher against the dollar and the yen on Monday, recovering from stumbles earlier in the session as the effects of disappointing US jobs data last week faded, although thin holiday trading exacerbated moves.

Data on US jobs creation came in sharply lower than expected on Friday, when stock markets were closed and bond markets closed early. While foreign exchange markets were open, the Good Friday holiday had made for particularly light volume.

"There's maybe a bit of a soft tone in the dollar on the jobs report," said Mark McCormick, a G-10 currency strategist with Brown Brothers Harriman. But, he cautioned, "price action has been pretty muted."

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 a handful of speakers from the US 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 M...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 0.20 percent to $1.3120. The single currency also rose 0.26 percent to 107.05 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 .275 vo ls on Monday, but improving from -3.5 vols in mid-February.

Euro/yen three-month risk reversals remained biased for euro puts, trading at - 3.55 v ols, n onetheless d own from -3.68 vols in early March.

The dollar seesawed against the yen, most recently trading off 0.02 percent to 81.60 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 US 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 contracts.

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.

Copyright Reuters, 2012

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