* US dollar slips on Fed, solid 10-yr Treasury debt
auction
* Fed's Bernanke signals no change to stimulus program
* Euro on upward trajectory on charts
(Recasts, updates prices, adds comments, changes byline)
By Julie Haviv
NEW YORK, Feb 9 (Reuters) - The U.S. dollar fell against
the euro on Wednesday, after a strong Treasury debt sale
accelerated bearish sentiment in the wake of comments by
Federal Reserve chairman Ben Bernanke that its bond buying
program would continue.
The dollar fell to a 3-day low versus the euro but was
steady against the Japanese yen as U.S. bond yields fell after
an auction of $24 billion 10-year Treasury notes drew strong
demand.
The euro rose as high as $1.3745 <EUR=EBS> on trading
platform EBS, breaking above resistance around $1.3740, the
61.8 percent Fibonacci retracement of its fall from November to
January. It last traded at $1.3724, up 0.7 percent. The next
upside target is around $1.3765, the euro's low on Feb. 2.
Most of G10 currencies have been range-bound this year and
short-dated implied volatility has fallen sharply, with notable
drops including USD/CAD 3-month volatility which is now at
levels seen before the 2008 financial crisis according to
Deutsche Bank.
Foreign exchange volatility is most strongly associated
with the level of the U.S. unemployment rate, the bank said, so
last week's sizable drop in the jobless rate is consistent with
lower volatility, but with long-term macro-economic risks still
abundant, long-dated volatility still looks set to lag rather
than lead short-dates.
The euro earlier broke above the $1.3700 level versus the
dollar, triggering stop orders in the wake of Bernanke's
testimony to the U.S. House of Representatives Budget Committee
that largely echoed a speech he delivered last week.
Bernanke said U.S. unemployment remained too high,
suggesting the Fed would push on with its $600 billion stimulus
program. The Fed's program, first announced last November, is
tantamount to printing money, essentially diluting the value of
the dollar.
Some analysts hoped that given more signs of a U.S.
economic recovery, Bernanke would drop hints that the Fed would
end its bond-buying program sooner than expected. Instead he
repeated concerns about high unemployment, ensuring the Fed's
quantitative easing will remain in place and fueling dollar
selling. For details, see []
"Bernanke is telling you that the Fed is not going to rush
to raise rates, and that's why the dollar sold off," said David
Woo, head of global rates and currencies research at Bank of
America Merrill Lynch in New York.
"To some extent, he's also pouring cold (water) on the bond
market selloff in the last week or so. So the dollar selloff is
in sync with the rally in Treasuries."
The euro had been rising throughout the session, with
traders citing talk of buying by central banks in Russia and
South Korea.
The dollar also hit a session low of 82.20 yen on EBS
immediately following the Treasury debt auction, but soon
turned slightly positive and was last at 82.37 yen <JPY=EBS>,
up 0.1 percent on the day.
Hedge funds were said to be buyers of the currency pair
overnight, with traders citing stop orders above 82.70 yen.
U.S. Treasury yields have moved higher across the curve in
the past week amid further signs of a U.S. recovery. Two-year
yields have risen about 30 basis points in the last week.
A break through 82.95 yen, the initial trendline
resistance, will trigger a bullish signal on dollar/yen and
open upside toward 85 yen, BNP Paribas said in a note.
More gains for the dollar are seen in the near term against
the yen, analysts said, especially since the currency pair has
lagged the increase in Treasury yields. At current two-year
yields, analysts said the dollar should be trading between 88
to 89 yen.
Further weighing on the yen was a Moody's warning that a
lack of success on fiscal reform would negatively affect
Japan's credit rating. []
The dollar fell 0.6 percent against the Swiss franc <CHF=>
to 0.9570 francs and was also down 0.2 percent against sterling
at $1.6105 <GBP=>.
The ICE Futures' dollar index, measured against six major
currencies, lost 0.5 percent to 77.598 <.DXY>.
(Additional reporting by Gertrude Chavez-Dreyfuss)
