* Euro climbs to two-month high against dollar
* Volatile price swings; euro zone inflation a concern
* Euro new year rally clears speculator shorts -CFTC data
(Updates prices, adds quote, detail)
By Steven C. Johnson
NEW YORK, Jan 24 (Reuters) - The euro hit a two-month high
near $1.37 on Monday but lost some momentum in New York trade
as worries about Europe's debt crisis and the speed of the
euro's recent rally provoked some euro longs to book profits.
Political turmoil in Ireland highlighted problems in
indebted euro zone countries and a bombing at Russia's biggest
airport also capped the currency's rise. []
Still, the euro rose for a fifth straight session, trading
up 0.2 percent at $1.3644 <EUR=EBS> late in New York. But it
was off a two-month high of $1.3683, and some analysts said it
could retreat several cents per dollar in the weeks ahead.
"The euro has come so far, so quickly, and all in the
absence of a real solution to the euro zone's debt problem.
That makes me think it's reached an extreme valuation for now,"
said Brendan McGrath, senior analyst at Wester Union Business
Solutions in Victoria, British Columbia.
"You're running into a lot of selling interest above
$1.3650," he said, adding: "I would imagine we may test $1.3350
or so," which should serve as near-term support.
In other trading, the dollar fell 0.1 percent to 82.48 yen
<JPY=> and the euro added 0.1 percent to 112.51 <EURJPY=>. The
dollar was also down 1 percent at 0.9484 Swiss francs <CHF=>.
EURO GAINS NEARING A TOP?
The euro has 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 rate rise this year. European Central Bank President
Jean-Claude Trichet warned over the weekend about price
pressures in the 17-country zone. []
The spread between euro zone and U.S. bond yields has
widened as a result. The euro's broad rally also cleared out
short positions, or 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.
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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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But some analysts warn that weakness in some euro zone
countries, including Ireland, Greece and Portugal, may hold the
ECB back from raising rates in the near term.
Irish Prime Minister Brian Cowan resigned as head of the
Fianna Fail party at the weekend, sparking political turmoil as
the country tries to pass a budget bill to access a bailout
from the EU and IMF. []
"I don't see how it's possible to raise rates this year
given the dire circumstances of the peripheral nations," said
Greg Salvaggio, vice president of trading at Washington-based
Tempus Consulting.
He said the U.S. economy is expected to outgrow the euro
zone in 2011, which should favor the dollar as the year goes on
and could lead to more hawkish talk from the Federal Reserve,
which has held rates at or near zero since late 2008.
The euro retained 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.
Other traders said it was too early to call an end to the
euro's rally. Forex.com chief strategist Brian Dolan said the
currency's ability to hold above $1.3625, the top of a closely
watched Japanese indicator, the Ichimoku cloud, was a bullish
sign.
Another jump would target $1.3695, then $1.3740, the 61.8
percent retracement of the November-to-January decline, traders
said.
(Additional reporting by Nick Olivari in New York; Editing by
Dan Grebler)
