The euro hovered below a five-month high against the dollar on Tuesday as investors assessed whether it can make fresh gains given that market players have already positioned themselves for a series of interest rate hikes in the eurozone during 2011. The European Central Bank is expected to raise rates by a quarter point from a record low of 1 percent at a meeting on Thursday to rein in inflationary pressures, with two more 25 basis point hikes priced in by year-end.
But the single currency has already risen more than 6 percent against the dollar and more than 10 percent versus the yen this year, making investors reluctant to buy more ahead of the meeting this week. The euro's rally has stalled right below resistance at its November high of $1.4283. That level is also crucial as it roughly coincides with trendline resistance drawn from the euro's record high set in July 2008.
The euro fell 0.1 percent from late US trade on Monday to $1.4203, pulling away from a five-month high of $1.4269 hit on Monday on trading platform EBS. A rise above its November peak of $1.4283 could open the way to $1.4374, the 76.4 percent retracement of the euro's slide from November 2009 to June 2010. Support is seen at $1.4190, with traders citing stops through to below $1.4150.
The euro edged up 0.2 percent against the yen to 119.77 yen, close to its 11-month peak of 120.073 yen hit on Monday. The dollar rose 0.3 percent to 84.33 yen, edging closer to a six-month peak of 84.735 yen set on Friday. A 200-day moving average at around 83.55 is now seen acting as support.
The Australian dollar dipped 0.4 percent to $1.0323, pressured by profit-taking in the wake of its rise to a 29-year high of $1.0422 the previous day. There was talk of both bids and stop-loss offers around $1.0300. The Aussie dollar took in its stride the Reserve Bank of Australia's decision to keep interest rates unchanged at 4.75 percent as widely expected. Some market players said, however, that position unwinding could temper gains in the Aussie from here on.
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