* Euro steadies on hopes for Irish aid package support
* Options market suggests euro sentiment improving
* China tightens by raising bank reserve requirements
(Adds quote, updates prices, changes byline)
By Gertrude Chavez-Dreyfuss
NEW YORK, Nov 19 (Reuters) - The euro rose broadly on
Friday, gaining for a third straight day versus the dollar, as
investors grew more confident that Ireland's debt crisis would
be resolved.
Gains in the euro, however, may prove temporary, with
investors generally fearful Ireland's problems could spread to
other peripheral economies in the euro zone.
Hopes that Ireland was near a deal to get tens of billions
of euros from its European partners and the IMF helped push the
euro above $1.37 overnight, although momentum stalled ahead of
resistance around $1.3750. Traders said this level is likely to
hold until markets get more details on the Irish rescue plan.
In the currency options market, euro sentiment stabilized
for now. The one-month euro/dollar risk reversal, a barometer
of currency sentiment, started to creep higher, suggesting
investors near-term are starting to get less euro-bearish.
The euro's risk reversal still showed a "put" bias, but it
has risen from extremely low levels. On Friday, puts traded
higher -- a mid-market of -1.175 vols <EUR1MRR=GFI>, with bids
at -1.55 vols. On Thursday, bids on euro puts were at -1.60,
falling from -2.025 vols early this week, a roughly 2-1/2-month
low.
"The fall-out from the banking crisis will play out in
Irish politics and in the economy for years to come. From a
global perspective, however, the tension in Ireland appears to
have come off the boil and this is lending support to the
euro," said Jane Foley, senior currency strategist at Rabobank
in London.
A deal to help Ireland cope with its battered banks will be
unveiled next week, EU sources said on Friday. Ireland will
publish the details of a four-year fiscal plan to save 15
billion euros at roughly the same time. For details, see
[]
TECHNICAL CORRECTION IN EURO
In early afternoon trading, the euro <EUR=> was up 0.3
percent at $1.3678, after rising as high as $1.3733 on trading
platform EBS. It has recovered from a slide to a seven-week low
of $1.3446 earlier in the week and is poised to end the week
slightly lower against the dollar.
"This abrupt calming in the markets coincides with an
expected technical correction in the euro," said John Ross
Crooks III, director of research at Black Swan Capital
Management in Florida.
Right now, Crooks said the euro is likely to pull back
toward its 72-hour moving average at about $1.3600. From there,
the euro should go higher to $1.3820 and $1.3975.
Some analysts said even if Ireland does get a rescue, the
euro is unlikely to see a big rally. "If there's a bailout for
Ireland, that's been largely priced in," said Aroop Chatterjee,
currency strategist at Barclays Capital in New York.
He added that funding concerns and fiscal consolidation
will remain negative for the euro next year. He expects the
euro to rise to $1.38 in one month, before sliding to around
$1.30 over 12 months.
News overnight that China tightened monetary policy by
raising banks' reserve requirements somewhat dented risk
appetite. []
The impact was felt by higher-yielding commodity-linked
currencies such as the Australian dollar<AUD=D4>. Australia is
a large exporter of commodities to China and tends to weaken on
worries of a slowdown in the Chinese economy. The Aussie dollar
last traded at down 0.3 percent against the greenback at
US$0.9858.
A speech by Federal Reserve Chairman Ben Bernanke in
Frankfurt helped push down U.S. Treasury yields, leading to a
fall in the dollar versus the yen. Bernanke hit back at critics
of the Fed's latest bond-buying program. He also issued a
thinly veiled attack on China's policy of keeping its currency
weak. []
The dollar last traded at 83.48 yen <JPY=>, flat on the
day. The euro, meanwhile, rose 0.1 percent agaisnt the yen to
114.06 <EURJPY=R>.
(Additional reporting by Wanfeng Zhou; Editing by Leslie
Adler)
