The euro dipped on Monday after German Chancellor Angela Merkel's conservatives lost a key state election and it could pull back towards $1.39 in the near-term, with the dollar supported after hawkish comments from some Fed officials.
Failure to break through option barriers around $1.4250 last week also saw some traders pare long exposure to the common currency, although support around $1.4015/35 appeared to be holding for now. The euro fell 0.3 percent from late US trade on Friday to $1.4051, pulling further away from a 4-1/2 month high of $1.4249 hit last week on trading platform EBS.
Earlier on Monday, it was marked down to around $1.4020, after having triggered stops below $1.4050, with one US bank cited as the main seller of the euro earlier in the day. The euro has support at the 20-day moving average near $1.40, and trendline support around $1.3975, which is drawn through the euro's January 10 low of $1.2860 and March 11 low of $1.3752.
The euro had been due for a pull-back, and the dollar due for a bounce, judging from market positioning. The latest data from the US Commodity Futures Trading Commission shows that currency speculators raised the value of dollar net short positions to $29.82 billion in the week ended March 22, up from $27.07 billion a week earlier.
The dollar index, which measures the dollar's value against a basket of currencies, edged up 0.1 percent to 76.324, pulling well away from a 15-month low of 75.340 set on March 21. Against the yen, the dollar rose 0.6 percent to about 81.78 yen, pulling away from a record low of 76.25 yen struck on March 17, when the yen jumped on stop-loss buying by retail margin traders and as option barriers were taken out. That jump in the yen prompted joint yen-selling intervention by Group of Seven industrialised nations the very next day.
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