* Euro retreats from two-month high against dollar
* Rally on Trichet loses steam, market eyes Ireland
* Euro new year rally clears speculator shorts -CFTC data
(Updates prices, adds detail on speculative positions,
changes dateline, previous LONDON)
NEW YORK, Jan 24 (Reuters) - The euro slipped from a
two-month high against the dollar on Monday as investors began
to bet the recent rally went too far, too fast, with political
turmoil in Ireland again highlighting problems in indebted euro
zone countries.
Tough talk on inflation pressures from European Central
Bank chief Jean-Claude Trichet on Sunday helped to push the
euro to its strongest since late November in early Asian trade.
[]
But momentum then faltered and some investors focused on
Ireland after Prime Minister Brian Cowan resigned as head of
the Fianna Fail party at the weekend, plunging the country into
political turmoil as it tries to pass a budget bill to access a
bailout from the EU and IMF. []
The euro <EUR=EBS> was down 0.2 percent on the day at
$1.3595 on electronic trading platform EBS, down about half a
cent from early highs.
"The downside risk is much higher than the upside risk for
the euro," said Mark McCormick, currency strategist at Brown
Brothers Harriman in New York. "A lot of the run up was really
quick and pricing in a (euro zone) rate hike too quickly."
Portugal's political situation, where the Socialist party
rules without a majority, has added to investor concerns over a
debt crisis in the past year and helped push Portuguese bond
yields sharply higher.
The euro rallied some 6 percent in the past two weeks,
aided by increasing international support for the euro zone's
debt rescue plan and concerns that higher inflation will prompt
a euro zone rate rise in the next few months.
The latter has widened the spread between euro zone and
U.S. bond yields and boosted the euro, but some analysts argue
that weakness in countries including Ireland, Greece and
Portugal may hold the ECB back from raising rates near term.
"The euro's rise today was driven by stop-losses, and once
those were taken out there were no more bids in the market,"
said Anders Soderberg, currency strategist at SEB in
Stockholm.
Solid data on euro zone industrial orders and a robust
euro zone flash estimate of services PMI failed to lift the
currency. [] []
It hovered within reach of a key technical level around
$1.3570, a 50 percent retracement of its decline from November
to early January. Technical analysts say it must hold above
that level on a sustained basis to extend its gains.
EURO POSITIONING FLIPS
The euro was up 0.2 percent at 112.70 yen on EBS
<EURJPY=EBS>, just off a two-month high hit in earlier trade
and still hovering above its 200-day moving average.
The euro's broad rally has cleared out short positions,
bets that the shared currency would depreciate.
The latest CFTC data show IMM euro positions held by
speculators shifted to 4,109 net long contracts last week,
versus 45,182 net shorts the previous week. Total long
contracts rose 24,950 while total short contracts fell 24,341.
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For a story on the latest IMM data, click on []
Graphic on http://r.reuters.com/kus26k
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The euro's pullback on Monday helped to support the dollar,
which rose 0.4 percent against the yen to 82.91 on EBS
<JPY=EBS>.
(Reporting by Nick Olivari, Additional reporting by Naomi
Tajitsu in London)
