* Dollar index <.DXY> at one-month high
* Market expectations high for U.S. non-farm payrolls data
* USD seen vulnerable to any disappointment in the numbers
* Euro nears stops below $1.2950, talk of bids at $1.2920
(Adds quote, detail)
By Anirban Nag
LONDON, Jan 7 (Reuters) - The dollar rose to a four-month
high versus the euro and a one-month high against a basket of
currencies on Friday ahead of U.S. jobs data, although dollar
bulls risked disappointment if it falls short of expectations.
A sell-off in peripheral euro zone government bonds before a
flurry of supply next week, an EU proposal that could force
those who lend to banks to bear big losses should they fail and
weaker-than-expected German retail sales numbers all combined to
knock the single currency lower. []
The dollar rose against a basket of major currencies to
81.076 <.DXY>, its highest since early December. The index has
gained over 2 percent this week, benefiting from a slew of
upbeat U.S. data including a report that showed a record number
of private sector jobs were created in December.
This prompted analysts to upgrade their forecasts for
non-farm payrolls to increase 175,000, up from 140,000 in an
earlier Reuters survey. Some in the market are far more
ambitious, looking for an increase of more than 450,000.
"There is a lot of weight that is being given to the U.S.
jobs numbers and even if we get a decent number, there is a real
risk that we could see a bounce in euro/dollar," said Neil
Mellor, currency strategist at Bank of New York Mellon.
"I am still not optimistic about the U.S. economy and
interest rates."
Traders will also await Fed Chairman Ben Bernanke's
testimony to the Senate. Faced with a newly-empowered Republican
Party that is sceptical of the Fed's latest attempt to stimulate
the U.S. economy, many expect Bernanke to temper some of the
optimism surrounding the recent rebound in economic data.
<^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^
Graphics:
U.S. payrolls preview: http://r.reuters.com/quv94r
ADP vs the Labor Department: http://r.reuters.com/sev94r
Jobless claims: http://r.reuters.com/sev94r
^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^>
EURO DEBT STRESS AND STRAINS
While the focus centred on the U.S. economy, euro zone
problems festered in the background, weighing on the euro.
The cost of insuring single-name euro zone sovereign debt
against default rose, with Spanish, Portuguese and Italian
credit default swaps (CDS) approaching record highs.
The euro <EUR=> fell to $1.2960 on trading platform EBS,
after sliding more than 2 percent over the two previous days and
briefly dipped below support in the $1.2970 area -- lows hit in
late November and early December.
Traders reported option barriers at $1.2950 with stop-losses
below. The euro edged back to stand at $1.2973 late in the
European morning.
"A weaker-than-forecast non-farm payrolls will see a
potential 150 point squeeze in euro/dollar but I see momentum
and price action remaining with the euro bears into the
weekend," said a London-based spot trader.
"Patience is needed but I would expect the weekly trends to
prevail whatever the fall out from today's data," he added.
While the euro could get some respite if the U.S. jobs data
disappoints, any gains could be temporary, said Paul Mackel,
director of currency strategy at HSBC.
"The market has run ahead of itself in pricing in a strong
U.S. jobs number. So we could see a squeeze in those short-term
long dollar positions. But having said that with the focus still
on euro zone sovereign debt problems, any bounce in the euro
could draw more short positions into being initiated."
Traders said there was talk of good bids for the euro at
$1.2920, near a cluster of intraday highs hit between mid-August
to early September that now act as support.
The dollar rose to a two-week high of 83.60 yen on EBS. This
was partially driven by dollar demand from hedge funds, traders
said. Exporter offers were said to be lurking above 84.50 yen,
right around the greenback's mid-December peak of 84.51 yen.
(Additional reporting by Neal Armstrong, editing by Ron
Askew)
