* Euro breaks $1.3000 but then eases
* Euro helped by rising European money market rates
* U.S. data impact dollar vs yen
(Updates prices, adds comment, detail)
By Nick Olivari
NEW YORK, July 16 (Reuters) - The euro touched a fresh
two-month high versus a broadly weaker dollar on Friday as
rising European money market rates continued to underpin the
shared currency, bringing large option barriers into play.
The single currency eased off the session high as the New
York session progressed however, as investors bet that the
sharp rally on Friday may have gone too far, too fast.
The dollar fell to a 7 month low against the yen with a
report on Friday showing U.S. consumer sentiment weakened in
early July to its lowest in 11 month, adding to negative
sentiment on the greenback. For more see [].
Reports on U.S. consumer price inflation and capital flows
into the U.S. did little to change investor sentiment. See
[] and []
"The euro is still relatively well bid and I would not be
surprised to see 1.3200 next week as people continue to want to
get out of these mature short positions," said John McCarthy,
director of foreign exchange trading at ING Capital Markets in
New York. "It just got a little too far, too fast."
In New York morning trade, the euro was trading little
changed at $1.2933, after earlier touching a 2-month high of
$1.3008 on electronic trading platform EBS.
The break above $1.3000 will bring resistance at $1.3125
into play, the 38.2 percent retracement of the euro's fall from
November to June.
Also bolstering the euro was the recent rise in euro-priced
bank-to-bank lending rates that picked up pace on Friday,
pushed on by the sharp drop in spare European Central Bank cash
in money markets. []
"The euro's going up on light volume, there's not much
liquidity today but European yields are rising and that's
helping to drag the euro higher," said Paul Mackel, director of
currency strategy at HSBC in London.
The euro has risen more than 9 percent from a four-year low
of $1.1875 hit on June 7 after smooth government debt auctions
in Greece, Portugal and Spain eased concerns about the euro
zone's sovereign debt problems.
Stress tests being conducted in the European Union will
show that all the major European banks have sufficient capital,
International Monetary Fund chief Dominique Strauss-Kahn said
on Friday, further erasing concerns about fiscal problems in
the euro zone. []
Other analysts however, said further weakening in the
dollar versus other major currencies, particularly the euro,
could be limited.
"The dollar's adjustment can be justified as the Fed may
have to do more easing, but in the longer term it could start
to benefit from safe-haven flows," said Jane Foley, research
director at Forex.com in London.
"If the Fed isn't going to hike, it's hard to see the ECB
hiking first," she added.
Market participants closely watched the dollar against yen
on the possibility of the greenback dropping to a 15 year low
by breaching the November 2009 trough of 84.81 on Reuters data
and 84.82 on electronic trading platform EBS.
Last December the Bank of Japan called an emergency meeting
soon after the dollar slid to the 14-year trough, and decided
to pump 10 trillion yen ($114.5 billion) in three-month funds
into the banking system.
The dollar was down 1.2 percent at 86.38 yen <JPY=> after
falling as low as 86.27 yen on EBS <JPY=EBS>.
The yen's latest rise has brought it to levels that could
cause pain to Japanese exporters if its gains are sustained,
with the BOJ's tankan survey showing the average forecast for
the dollar/yen rate in the year to next March among large
manufacturers is 90.18 yen.
(Editing by Chizu Nomiyama)
