* Dollar index steady after dipping Friday to 2-month low
* Next euro upside target is May reaction high at $1.2673
* But euro pauses after boost last week on short-unwinding
* Euro faces resistance near $1.2595 and $1.2620
* U.S. markets holiday likely to mean Monday is subdued
By Charlotte Cooper
TOKYO, July 5 (Reuters) - The dollar held steady near a
two-month low on Monday and the euro paused after last week's
boost from unwinding of short and leveraged positions, with
traders and analysts seeing scope for it to squeeze a bit higher.
With attention turning to a slowdown in the United States and
away from the euro zone's banking and government debt woes,
analysts said the next upside target for the euro was a May
reaction high at $1.2673 <EUR=>.
Leveraged trades funded in the euro, be it long dollar,
commodity currencies or emerging markets, were being cut, while
at the same time the euro selling seen in April and May looked to
be exhausted for now.
"I'm not seeing money flooding back into euro on a broad
basis. You really have to describe it as exhaustion," said Greg
Gibbs, FX strategist at Royal Bank of Scotland in Sydney.
The question for markets at this point, with concern that the
U.S. recovery was losing steam, was what should they buy.
"The fear of maybe not necessarily double-dip but certainly a
very long period of low employment growth and very low rates is
definitely playing into the markets' view," Gibbs said.
The euro <EUR=> eased 0.2 percent to $1.2540, with support
seen around its 55-day moving average, currently near $1.2530.
Last week, the euro gained 1.5 percent against the dollar,
reversing a loss from the previous week and gaining greater
distance from June's four-year low at $1.1876 on trading platform
EBS.
The euro faces resistance near $1.2595, the bottom of the
cloud on daily Ichimoku charts, and then near $1.2620, a 38.2
percent retracement of its drop from its March high near $1.3820
down to its four-year low.
The euro's rise late last week had stalled at $1.2613, just
short of that retracement level.
Jonathan Cavenagh, currency strategist at Westpac in Sydney,
said leveraged trades funded in euro were being cut and the low
level of yield on the U.S. 10-year Treasuries suggested the euro
should be trading higher.
U.S. yields have fallen sharply after a slew of soft U.S.
economic numbers suggested recovery would be tepid. The 10-year
note yield <US10YT=RR> has fallen below the psychological 3
percent mark, trading at 2.98 percent.
Friday's monthly jobs report showed the economy shed 125,000
jobs in June, while private payrolls rose less than expected.
Overall employment fell for the first time this year as thousands
of temporary census jobs ended.
The data followed a raft of weak reports that suggested
consumer spending, housing and factory activity were moderating.
[]
The dollar lost ground last week before the data and on
Friday the dollar index <.DXY> hit its lowest level in nearly two
months at 84.132.
By Monday, it had steadied at 84.495, up 0.1 percent from
late U.S. trading on Friday, with short-term support seen around
83.20, roughly a 38.2 percent retracement of the index's move
from a low of 74.17 in November to a high near 88.71 in June.
Trade was quiet, with U.S. markets closed for a holiday.
The dollar edged up 0.2 percent against the yen to 87.92 yen,
pulling further away from a seven-month low of 86.96 yen set last
week, with some talk of dollar buying by Japanese importers.
But it lost 1.8 percent against the yen last week as U.S.
yields fell, and traders said there was talk of options triggers
below 85 yen. The dollar hasn't fallen below 85 yen since
November last year when it hit a 14-year low at 84.82 yen.
Data from the Currency Futures Trading Commission showed net
long yen positions jumped in the week to June 29. The value of
the dollar's net long position slipped to about $9.5 billion in
the week ended June 29 from $12.2 billion in the prior week.
<IMM/FX>
(Additional reporting by Anirban Nag and Reuters FX analyst
Krishna Kumar in Sydney, Rika Otsuka and Masayuki Kitano in
Tokyo; Editing by Chris Gallagher)
