* Choppiness expected but with lack of much direction
* Euro has scope to fall to $1.3775 after balking at $1.4000
By Charlotte Cooper and Masayuki Kitano
TOKYO, Oct 19 (Reuters) - The dollar gingerly tested firmer
ground on Tuesday after a bout of choppiness and players did not
rule out an eventual 1.5 cent retreat by the euro if some long
positions grew stale and unwound ahead of expected U.S. easing.
With quantitative easing from the Federal Reserve now well
priced-in ahead of its Nov. 2-3 meeting, currencies have broken
higher ground against the dollar, with the euro topping $1.4160
last week and the Australian dollar testing parity.
But squeezing out more gains is likely to be tough until the
market sees how sizeable QE will be, with one trader saying, for
Tuesday at least, that short-term players were simply flipping
positions within tight ranges.
The euro has failed to clear $1.4000 again since Friday's
surge above $1.4100 and this was seen as a caution by some that
more long euro/short dollar positions could unwind, with the
euro's Oct. 12 low of $1.3775 <EUR=> seen as a possible target.
"I think we will see a pull-back in the euro in the near
term," said a Japanese brokerage house trader, noting that there
could be more short-covering in the dollar after the recent
build-up of short dollar positions.
"The market probably has gone as far as it can go based on
the factors in the United States."
The euro dipped 0.2 percent to $1.3900, well below Friday's
eight-month high. Initial support is expected at $1.3825, with
resistance up at $1.40 and a move above $1.4050 needed to restart
its rally.
But as traders play a waiting game, even moves down might not
be sustained for long, with macro funds ready to buy as
currencies fall against the dollar, said Robert Ryan, FX
strategist at BNP Paribas in Singapore.
"Some positions will have been chopped over the past two days
but it seems there's more support on the downside."
Treasury Secretary Tim Geithner gave a brief fillip to the
dollar after he said the United States would not engage in dollar
devaluation and needed to work hard to preserve confidence in a
strong dollar. []
BRIEF FILLIP
Analysts said the comment had little lasting impact beyond
reassurance from the United States for investors to maintain
confidence in the dollar as the world's reserve currency, after
the greenback's fall of the past few months, and as tensions stir
ahead of meetings of the G20 on talk of competitive devaluations.
"You can imagine that the U.S. might think it's time to say
or do something which helps stabilise the dollar for the near
term," said Greg Gibbs, currency strategist at Royal Bank of
Scotland in Sydney.
The dollar index <=USD><.DXY> firmed 0.4 percent to 77.403.
Technical analysts say it needs to extend above its Oct. 12 high
of 77.93 to signal a short-term bottom is in place after Friday's
10-month trough of 76.144.
The dollar edged up 0.3 percent against the yen to 81.52 yen
<JPY=>, creeping further away from a 15-year low of 80.88 hit
last week and a record low of 79.75 set in 1995.
Earlier in the day, there was talk of dollar selling by
Japanese exporters at levels near 81.30 yen.
The Nikkei business daily said major Japanese manufacturers
were planning to lower their assumed dollar/yen exchange rates
for the fiscal second half to around 80 to 85 yen.
Japan's third-largest life insurer, Meiji Yasuda Life, said
it planned to increase its foreign bond holdings by 200 billion
yen ($2.5 billion) in October-March. The insurer also said it
planned to raise its holdings of foreign shares, including from
emerging markets, by 50 billion yen during that period.
[]
The Australian dollar <AUD=D4> fell 0.5 percent to $0.9846,
correcting further after charging to parity with the U.S. dollar
on Friday.
<^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^
For Aus GDP graphic http://link.reuters.com/syh88p
^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^>
It initially firmed after the Reserve Bank of Australia's
minutes from its Oct. 5 meeting said the arguments to hold or
hike rates were finely balanced, but later gave up the gains.
The RBA, which has been raising rates while the United States
and other developed economies have been looking to ease, judged
it had the flexibility to keep rates unchanged in October as a
rising local dollar tightened monetary conditions, while domestic
credit growth remained weak and global growth uncertain.
($1=81.26 Yen)
(Contribution by Reuters FX analyst Krishna Kumar in Sydney;
Editing by Edmund Klamann)
