* Dollar speculative shorts largest since mid-2008
* Lack of G7/IMF coordination hampers greenback
* China temporarily increases deposit reserve ratio
* Dollar hits 15-yr low vs yen but steadies at 82.00 <JPY=>
(updates prices, adds quote)
By Neal Armstrong
LONDON, Oct 11 (Reuters) - The dollar slipped on Monday as
the Federal Reserve looked set to pursue loose monetary policy
to support the U.S. economy, although with bets against the
greenback piling up traders were wary about pushing it lower.
The IMF's failure to reach an accord on how to tackle the
issue at meetings over the weekend seemed to ensure currency
tensions would only mount up and left dealers wondering when
more governments would take action to shift the burden of the
falling dollar. []
"There looks to be no basis for agreement on currency
imbalances from the weekend meetings and the U.S. looks set to
continue to pursue loose monetary policy going forward," said
Neil Mellor, currency strategist at Bank of New York Mellon.
The U.S. September employment report on Friday exacerbated
concerns over the economy, showing the labour market shrank for
the fourth consecutive month. Traders said the next focus would
be on Fed minutes on Tuesday for fresh insight into the central
bank's thinking on monetary easing measures.
Debate centres on whether the Fed will opt for drip-feed QE
or a "shock and awe announcement", with most investors thinking
the trigger will be pulled at its next policy meeting in
November. Some are expecting the Fed to announce at least $500
billion of Treasury purchases over the next six months.
"Short dollar positions are stretched but it will take a
turnaround in U.S. data or if the Fed rules out QE to see a
dollar rebound," said Adrian Schmidt, FX strategist at Lloyds
TSB Financial Markets.
The dollar's losses were slightly offset by China's
decision, according to Reuters sources, to raise temporarily its
deposit reserve ratio for six big banks on Monday, which dented
risk appetite but had no major market impact. [].
DOLLAR POSITIONING STRETCHED?
The euro and the Australian dollar could prove to be the
paths of least resistance to express a longer-term weak U.S.
dollar view as Asian reserve managers diversify their foreign
exchange reserves, though positioning may be stretched.
Currency speculators boosted bets against the dollar to $30
billion in the latest week, the largest bet against the U.S.
currency since mid-2008. []
<^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^
Graphic on FX positioning http://r.reuters.com/kus26k
Graphic on trade-weighted FX moves since 2007
http://r.reuters.com/qun86p
^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^>
"Where EUR/USD is concerned, the fact that we feel the
initial, justifiable leg of dollar weakness has already run its
course makes us apprehensive about speculative euro buying above
$1.40," said Stephen Gallo, head of market analysis at Schneider
Foreign Exchange.
At 1120 GMT the euro was at $1.3932 <EUR=>, close to flat on
the day, after earlier climbing to $1.4011, seeking to test last
week's $1.4030 high.
Traders saw resistance at $1.4216, a level which acted as
support on Dec. 22, when the euro was declining, together with
the next key Fibonacci level at $1.4372, the 76.4 percent
retracement of the euro's fall from November to June.
The dollar sank to a 15-year low of 81.37 yen <JPY=> in
Asian trade but recovered to 82 yen. Options traders said a
large 82.00 expiry for Monday's 1400 GMT cut could restrict
further movement on the day, along with the U.S. Columbus Day
holiday.
Dollar/yen traded at 81.97, up 0.09 percent, while the
dollar was down 0.1 percent against a currency basket <.DXY> at
77.228, close to a nine-month low of 76.906 hit on Thursday.
The risk of another round of intervention to weaken the yen
seemed to have grown after Japan weathered the flurry of weekend
G7 and IMF meetings with hardly any criticism of its recent bout
of yen sales, but there was no sign of action on Monday.
(Graphics by Scott Barber, additional reporting by Anirban
Nag)
