-- Euro steadies but underlying tone negative as traders mull US policy outlook
-- Looming ECB rate decision adds to drag
-- Yen stays weak as investors eye BOJ inflation target
By Alexandra Fletcher
The euro steadied in European trade Monday but its underlying tone against the dollar remained negative as traders recalled the previous week's hint from the Federal Reserve that an end to U.S. monetary easing might yet be in sight and focused on the European Central Bank's next interest rate decision.
The euro shied away from a return to $1.30, having briefly weakened below that level in Friday trade, but remained more than 1% down in the year-to-date period as investors awaited further clues from the Fed policymakers scheduled to speak later in the week.
European shares and US stock index futures were also weaker as equity investors awaited this week's start of the fourth- quarter earnings season.
In the absence of new economic data, currency traders continued to mull the Fed's December Federal Open Market Committee minutes Thursday in which policymakers at the U.S. central bank reminded the market that monetary stimulus will be withdrawn at some point.
Three regional Fed presidents speaking this week are likely to address the topic. St. Louis President James Bullard, Kansas City President Esther George and Minneapolis President Narayana Kocherlakota speak Thursday while Philadelphia President Charles Plosser speaks Friday.
"All bar one of the Fed speakers scheduled to speak this week are likely to be hawkish," said Jane Foley, senior foreign exchange strategist at Rabobank in London.
"If they too suggest that [quantitative easing] will end sooner rather than later then that is likely to send Treasury yields higher and therefore support the dollar further," she said.
The ECB's meeting Thursday also weighed on the euro, with some economists, including those at Morgan Stanley, saying an interest rate is cut possible.
The yen also continued to sag against the dollar after Japanese Prime Minister Abe declared his government would consider changing the law governing the Bank of Japan if the central bank doesn't set an inflation target of 2% voluntarily at its next policy meeting.
Currency strategists at Citigroup said in a note to clients that the market is pricing in more radical changes to policy such as a greater increase of the asset buying program.
The pound rebounded slightly against the dollar. The Bank of England, also due to meet Thursday, is expected by economists to keep super-low interest rates on hold.
The Romanian leu was unmoved after the country's central bank left its rates on hold at 5.25% for a sixth consecutive month.
At 1217 GMT, the euro was trading at $1.3035 against the dollar, compared with $1.3070 late Friday in New York, according to trading system EBS. The dollar was at Y87.89 against the yen, compared with Y88.16, while the euro was at Y114.55, compared with Y115.22. Meanwhile, the pound was trading $1.6065 against the dollar, compared with $1.6069 late Friday in New York.
The Wall Street Journal dollar index, which tracks the U.S. dollar against a basket of currencies, was at 71.095 from about 71.063.
A summary of key levels for chart-watching technical strategists is below:
Forex spot: EUR/USD USD/JPY GBP/USD USD/CHF
Spot 1103 GMT 1.3042 87.88 1.6060 0.9268
3 Day Trend Bearish Bullish Bearish Bullish
Weekly Trend Bearish Bullish Bearish Bullish
200 day ma 1.2928 80.63 1.5950 0.9348
3rd Resistance 1.3180 88.75 1.6135 0.9383
2nd Resistance 1.3123 88.48 1.6117 0.9350
1st Resistance 1.3091 88.18 1.6076 0.9303
Pivot* 1.3053 87.96 1.6065 0.9260
1st Support 1.2998 87.60 1.6010 0.9231
2nd Support 1.2974 87.35 1.5962 0.9175
3rd Support 1.2962 86.50 1.5943 0.9135
Forex spot: AUD/USD
Spot 1103 GMT 1.0505
3 Day Trend Bullish
Weekly Trend Bullish
200 day ma 1.0358
3rd Resistance 1.0587
2nd Resistance 1.0525
1st Resistance 1.0529
1st Support 1.0465
2nd Support 1.0430
3rd Support 1.0394
(Dow Jones Technical Strategist Francis Bray contributed to this story.)
Write to Alexandra Fletcher at [email protected]