* Euro slips vs dollar, support at $1.3795-3805
* Dollar slips vs yen, support at Y81.80
* Yen gains ground on crosses
By Charlotte Cooper
TOKYO, Oct 12 (Reuters) - The dollar held its ground on the
euro and a basket of currencies on Tuesday, showing signs it may
retain gains near-term from a short-covering bounce as players
take some short positions off the table.
The euro has struggled to clear $1.40 <EUR=> in the past
three sessions, after hitting an eight-month high of $1.4030 last
week, and traders said automatic sell orders were starting to
build just below the current price, down at $1.3830-35.
The speculative part of the market has become short dollars
as it has factored in quantitative easing by the Federal Reserve
in November. Market players say this means people will now be
cautious about selling it aggressively from here and it could
bounce if U.S. policymakers sound less dovish than expected.
"We're seeing a bit of a correction this morning and we could
see more consolidation this week," said a senior trader at a
European bank in Hong Kong, noting share markets were faltering.
"The way down for the dollar looks a bit limited in the short
term ... but then I'd expect the dollar to continue lower."
Minutes from the Fed's meeting on Sept. 21, when it said it
stood ready to provide more support for the economy and expressed
concern about low inflation, are due at 1800 GMT and will be
scrutinised for more clues on policymakers' thinking.
The euro slipped 0.1 percent to $1.3865 <EUR=>, well below an
eight month high of $1.4030 hit last week. If it triggered stops
down at $1.3830-35, then support was expected at $1.3795-1.3805,
a cluster of previous highs and lows.
After that, the trader said he didn't rule out a move back
down to $1.3650, back to levels seen early last week.
The dollar rose 0.1 percent against a basket of currencies
<.DXY> to 77.507, not far from a nine-month low of 76.906 hit
last week. It has now bounced off the 76.90 area twice and if the
short-covering picks up steam, a target on the charts would be
78.68, the high of Oct. 5.
<^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^
Graphic on FX positioning http://r.reuters.com/kus26k
TWI FX moves since '07 http://r.reuters.com/qun86p
PDF on "currency wars" http://r.reuters.com/gez77p
^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^>
But for dollar/yen the going was heavy, with short-covering
there running out of steam as the yen gained ground on the
crosses. The dollar drooped 0.2 percent to 81.93 yen <JPY=>,
finding some support from Japanese importers.
"The question is just how much the buying interest from
Japanese importers and wariness about intervention will help
limit the downside," another trader said.
"From the perspective of speculators I think they will
probably be looking to sell on rallies, at levels above 82 yen."
Still, wariness about intervention by Japan and the extent of
short positioning stopped it falling too far. Support was
expected at 81.80 and then 81.30.
"Investors, or market participants, are gradually finding it
more difficult to make extra short positions in the U.S. dollar,"
said Yunosuke Ikeda, senior currency strategist at Nomura
Securities.
"So if you see any kind of positive data or less pessimistic
data, or less dovish statements from Fed officials then there is
a potential for reversal of the dollar value trajectory."
The dollar dipped briefly on Monday to 81.37, a 15-year low.
Traders say ultimately a test of 80 yen and the record trough of
79.75 yen is likely, but some saw scope short-term for a move up
to 83.00 yen. Resistance was expected at 82.55-60 and then up at
a former low, 82.87.
One trader at a Japanese bank said the dollar may now trade
between 81.50 and 83.00 ahead of a meeting of G20 finance chiefs
in South Korea later in October, when last weekend's discussions
on currency policy are likely to be continued.
Tokyo escaped overt criticism from its G7 and G20
counterparts at the weekend for its yen-selling intervention in
September. Finance Minister Yoshihiko Noda said after the meeting
he gained understanding there that the action was aimed at
countering excessive currency moves and not a prolonged, massive
intervention aimed at driving down the yen to a certain level.
"The last line of defence might be 80, which is politically
important because if the dollar/yen breaks that level it will
reach the highest value of the yen against the dollar in
history," Ikeda said.
"But ... this level of 82 is still intervention territory for
the Japanese government."
The euro fell 0.2 percent to 113.63 yen <EURJPY=R>, while the
Australian dollar dropped 0.6 percent to 80.19 yen <AUDJPY=R> and
shed 0.5 percent to $0.9783 <AUD=D4>.
(Additional reporting by Chikafumi Hodo and Masayuki Kitano,
contribution by Reuters FX analyst Krishna Kumar in Sydney and
Rick Lloyd in Singapore; Editing by Joseph Radford)
