* Euro rally stalls; resistance above $1.27
* High-yielders hold gains on improving outlook
* Canada dollar surges on strong jobs data
(Updates prices, adds details, changes byline)
By Nick Olivari
NEW YORK, July 9 (Reuters) - A rally that pushed the euro
to its highest level in more than two months stalled on Friday
and the currency slipped on technical factors, with some
investors betting the recent move was too far, too fast.
The euro rose 1.3 percent this week and touched $1.2723
earlier in the session on electronic trading platform EBS
<EUR=EBS>, its highest level since early May. The currency was
supported by strong German factory data, a positive U.S. jobs
report and more clarity on European bank stress tests.
But traders said the euro struggled to maintain gains above
$1.27, due to lingering worries about the euro zone economy.
"The euro tested but did not break technical resistance
levels overnight and has subsequently given up a share of its
recent gains," said Vassili Serebriakov, a currency strategist
at Wells Fargo Bank in New York.
"While there have not been any obvious catalysts for the
euro's pullback this morning, the speed of the move suggests
the underlying sentiment on the currency remains negative," he
added.
In midafternoon trading in New York, the euro traded down
0.4 percent at $1.2640 <EUR=>, after reaching $1.2722 according
to Reuters data.
Despite its recent rally, the euro zone's debt problems
have discouraged investors from taking long positions in the
euro. Some Asian central banks were seen willing to
re-establish long euro/dollar positions above $1.2750 because a
clear breach of $1.2730 would suggest the downtrend had been
broken.
"There is still a risk that euro shorts get covered and the
bounce extends but it is no more than that: a short-term
bounce," said Adam Cole, global head of foreign exchange
strategy at RBC Capital Markets.
That view was reflected in the gap between 1-month risk
reversals <EUR1MRR=ICAP>, which have fallen nearly 55 basis
points to 0.85/1.35 percent since end-June, and 1-year risk
reversals <EUR1YRR=ICAP>, which have shed 25 basis points.
This indicates traders are willing to pay a higher premium
to buy the right to sell the euro in coming months.
Ian Stannard, a foreign exchange strategist at BNP Paribas,
said that increased demand for high-yielding commodity
currencies such as the Australian and Canadian dollars would
also hit the euro, which has come to be seen as a funding
currency.
CANADIAN DOLLAR RISES
One of Friday's biggest movers was the Canadian dollar
<CAD=>, which surged 1 percent against the greenback on a
stronger-than-expected improvement in jobless figures.
[]
The U.S. dollar traded down at C$1.0330, after hitting its
lowest since late June.
Canada's figures mirror robust jobs data from Australia
earlier this week that drove the Australian dollar up more than
4 percent.
Strong data has boosted hopes of a firmer economic recovery
and raised pressure on the low-yielding yen <JPY=> as investors
cut long positions and shifted into high-beta currencies like
the Aussie <AUD=> and New Zealand dollars <NZD=>.
The euro touched a two-week high earlier of 112.69 yen on
EBS <EURJPY=EBS> and 112.67 on Reuters data <EURJPY=> after
jumping more than 1 percent on Thursday but pared those gains
to trade last at 111.89 yen on Reuters.
The dollar was up 0.2 percent at 88.52 yen <JPY=>.
Currency analysts at Citigroup Inc said in a note a sharp
shift in positioning and a decisive move higher in rate
differentials in favor of the United States suggests
dollar/yen is poised for an up move in the near term.
The dollar was down 0.9 percent against the South Korean
won after U.N. Security Council on Friday condemned what it
called an attack leading to the sinking of a South Korean ship
in March, but in a concession to China stopped short of
explicitly blaming North Korea. []
(Additional reporting by Lin Noueihed in London)
(Reporting by Nick Olivari and Vivianne Rodrigues; Editing by
Dan Grebler)
