Euro eases in London

The euro eased on Monday, heading into a cluster of Asian demand and technical support, after Germany's ruling party lost a key state election, while hawkish comments by Federal Reserve officials lifted the dollar. The loss by Chancellor Angela Merkel's conservatives of Baden-Wuertemberg, which they had held for nearly six decades, led markets to bet Merkel will have less leeway to shore up financially stricken members of the single currency bloc.
The higher-yielding Australian dollar, hit a 29-year peak of $1.0315, breaking past option barriers at $1.03. Recent intervention to weaken the yen and stronger risk appetite were factors underpinning the Aussie's rise, traders said. For the euro, the failure to break through option barriers near $1.4250 last week saw some paring of speculative long positions, moving it towards reported Asian central bank bids at $1.4030/10.
The euro was down 0.2 percent to $1.4044, off a 4-1/2 month high of $1.4249 hit last week on EBS. It fell to around $1.4020 in the Asian session. Near-term support lies 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 for a bounce, judging from market positioning. Latest data from the Commodity Futures Trading Commission shows speculators raised the value of dollar net short positions to $29.82 billion in the week ended March 22, up from $27.07 billion. Losses in the currency are likely to be limited, however, with the European Central Bank still expected to raise rates next month. ECB President Jean-Claude Trichet speaks at 1300 GMT and is likely to reiterate his hawkish stance towards inflation.
The dollar index edged up 0.2 percent to 76.348, pulling away from a 15-month low of 75.340 set on March 21. Its 50-day moving average comes in at 77.285 on Monday. The dollar was up 0.5 percent at 81.70 yen with implied volatilities staying low, which traders said was ruling out the need for any further official yen selling intervention in the near-term. One-month dollar/yen vol traded around 10 percent, compared to around 20 percent when the yen rose to a record high of 76.25 earlier this month.