* Euro helped by ECB officials' comments, but hurdles seen
* German Ifo numbers beat expectations
* Merkel party's defeat weighs on euro sentiment
By Anirban Nag
LONDON, Feb 21 (Reuters) - The euro was firm on Monday,
having hit its highest level in more than 10 days, drawing
support from hawkish comments from European Central Bank
officials and robust economic data.
But traders said the euro seemed contained by the hawkish
ECB rhetoric on one side and the risk-off sentiment stemming
from North Africa and the Middle East on the other.
[]
It also lacked the vigour to break above key resistances
after Germany's main ruling party suffered a crushing defeat at
a regional election in the city-state of Hamburg on Sunday.
[].
While the defeat was expected, the margin was not. Analysts
said that ahead of the remaining state elections next month, the
waning popularity of the ruling coalition could suggest that
Angela Merkel's government may be less willing to compromise on
thorny issues like striking a quick agreement on the euro zone
debt crisis or re-negotiation of the Irish bailout.
With the upcoming Irish general election on Friday likely
see a party which is openly calling for a renegotiation of the
bailout agreement come to power, analysts say there is a risk
that the euro could come under pressure.
"With neither the core nor the periphery signaling
willingness to find a compromise on the issues for now the
chances are that potential political impasses could erode euro
sentiment going forward," said Valentin Marinov, strategist at
Citi FX.
"In the very near term, however, investors seem preoccupied
with the inflation and rate outlook for the euro area."
The common currency was trading at $1.3705 <EUR=>, up 0.1
percent on the day. It rose to $1.3727 earlier in the session,
the highest since Feb. 10, extending its rise sparked by
comments on Friday from ECB Executive Board member Lorenzo Bini
Smaghi that the bank stood ready to raise rates as needed to
counter inflationary pressures.
Governing Council member Ewald Nowotny chimed on Monday in
when he told a newspaper that while the ECB saw no signs of
second-round inflationary effects at the moment, it was closely
monitoring rising energy and food prices.
Key German Ifo survey suggested growth in the euro zone's
largest economy was gathering pace and those came after figures
showed activity in the euro zone's private sector grew more
quickly than expected this month. []
All of which lent considerable support to the euro but it
still fell short of testing major resistance around $1.3750,
including the currency's Feb. 9 peak of $1.3745.
DOLLAR/YEN COULD RISE
Some analysts said U.S. bond yields will also be a key
factor for the euro/dollar. U.S. bond yields have been dipping
since hitting a peak earlier this month as expectations of an
early rate hike by the Federal Reserve recede. If, they fall
further, that could see the dollar under more pressure.
U.S. financial markets are closed for a holiday on Monday.
The dollar index <.DXY>, which tracks the greenback's
performance against a basket of major currencies, held steady at
77.673, not far from its Feb. 9 low of 77.504.
Against the yen, the dollar inched up to 83.10 yen <JPY=>,
but well below a two-month high of 83.98 yen last Wednesday on
trading platform EBS.
Data from the U.S. Commodity Futures Trading Commission
showed on Friday that speculators held net yen short positions
for the first time since June in the week to Feb. 15.
The data surprised traders because the change in their
positioning - to a net yen short position of 18,548 contracts
from net yen long of 36,731 contracts - was the largest since
February 2004. [].
Gareth Berry, an analyst at UBS Investment Bank in
Singapore, said the shift in positions points to a sharp swing
in sentiment that could bode well for the dollar.
"I think most investors are pretty convinced that dollar/yen
is about to rise...and they are now waiting for a good entry
point," Berry said, adding that the dollar could rise to 85 yen
over the next month.
"That positioning data...could be the signal that will
convince a lot of investors to say right now is the time."
(Editing by Toby Chopra)
