* Dollar/yen capped by Japan exporter selling
* Dollar may extend gains on short-term buying
* But data shows dollar shorts at lowest in 10 months
By Satomi Noguchi
TOKYO, Dec 21 (Reuters) - The dollar dipped against the euro
on Monday but still hovered near its highest point in more than
three months as currency players anticipated more short-covering
in the greenback in a holiday-shortened week.
A brighter outlook for the U.S. economy after stronger
figures on the job market and retail sales earlier this month has
also helped the dollar maintain its rising momentum.
"The dollar may extend gains a little more as momentum buyers
could chase the dollar up while it stays in an uptrend," said
Masafumi Yamamoto, chief FX strategist for Barclays Capital in
Japan.
"But gains are likely to slow down, unlike what we saw last
week, because many dollar-short positions have already been
neutralised by now, and short positions in the euro on the other
hand are growing," Yamamoto said.
Speculators cut bets against the dollar to their lowest level
in more than 10 months in the week ended Dec. 15, U.S. Commodity
Futures Trading Commission data showed on Friday. []
The euro remained vulnerable after the European Central Bank
raised its estimate of euro zone bank writedowns.
[][]
The euro's recovery was also capped after ECB Vice President
Lucas Papademos said on Friday the central bank would not change
plans to tighten its collateral rules at the end of next year
should Greek sovereign debt fall below the required "A-"
standard, analysts said. []
The euro stood at $1.4350 <EUR=>, inching up 0.1 percent from
late New York trade on Friday when it fell as low as $1.4262 on
trading platform EBS, its lowest since Sept. 4.
A senior options trader at a Japanese bank said demand for
longer-dated dollar call options in euro/dollar had increased
partly due to the outlook that the U.S. economy is recovering
faster than the euro area, which could mean the Federal Reserve
might tighten before the ECB.
Dollar calls are the right to buy the dollar at an agreed
level until a specific date.
"What we are seeing may be a reflection of a structural shift
from a market dominated by massive dollar carry trades to more
dynamic investments than simple position squaring by
speculators," the trader said.
The dollar index, a gauge of the greenback's performance
against six other major currencies, dipped 0.1 percent to 77.719
<.DXY>, off Friday's peak of 78.141, its highest since Sept. 4.
A focal point is whether the market will continue to bid up
the dollar in reaction to any positive U.S. economic data, or
whether such upbeat indicators increase optimism about the
outlook for the global economy and prompt investors to sell the
dollar to invest in higher-yielding currencies and assets, said a
trader for a Japanese brokerage house.
The euro recovered to trade flat on the day at 1.4950 Swiss
francs <EURCHF=> after falling earlier below 1.4900 and hitting
nine-month lows.
Investors are nervous that the Swiss National Bank might
intervene to weaken the Swiss franc after the euro broke below a
perceived threshold of 1.50 francs late last week.
The SNB sold francs to fight deflation earlier this year, but
some analysts said modest improvement in the Swiss economy may
mean that the SNB is less likely to intervene now.
The dollar fell 0.2 percent to 90.31 yen, capped by
expectations for more selling orders from Japanese exporting
companies trying to repatriate overseas earnings after the dollar
gained to a six-week high of 90.91 yen on Friday.
Japanese retail investors have also been keen to sell into
the dollar's rise. Retail margin traders on the Tokyo Financial
Exchange increased their net short positions in the dollar
against the yen to 97,630 contracts on Friday, the highest on TFX
data going back to July 2006.
(Additional reporting by Masayuki Kitano; Editing by Chris
Gallagher)
