FOREX-Euro back around $1.37 as ECB meets again

Reuters

(Recasts after European open, changes dateline from previous TOKYO/SYDNEY)

* Euro just off six-week highs, regains all ground lost since last ECB meeting

* 55-day moving average at $1.3698 is big resistance

* Aussie gains after RBA sticks with policy message

* Dollar index edges away from seven-week lows

By Patrick Graham

LONDON, July 1 (Reuters) - The euro held near a six-week high against the dollar on Tuesday, threatening a break past $1.37 that could quickly see it back at levels expected to provoke at least a verbal response from the European Central Bank.

Dealers said there was strong support for the euro around its 55-day moving average at $1.3698 and it retreated after touching that level overnight.

A number of analysts from the global financial system's biggest banks have returned to arguing in recent weeks that the dollar is on the verge of a push higher, given the prospect of rises in U.S. interest rates sometime next year.

But the greenback disappointed heavily on similar bets at the start of this year and there is little sign yet of a move higher. The euro has recovered all of the ground lost since the ECB announced a new round of monetary easing a month ago.

"I'm not sure we're quite at that level yet, but above $1.38 I think might put it back on the bank's radar," said Ian Stannard, a currency strategist with U.S. bank Morgan Stanley in London.

"$1.37 is the top of the recent range so I wouldn't be surprised if there are big stops around there."

Dealers pointed to a large option taken last month that would be triggered by a break above $1.37.

Stannard is among those calling for a stronger dollar, however, pointing to increasingly stretched valuations on European stock and bond markets which may begin to stem the flood of investment over the past six months.

The ECB's action last month will push yet more cash into circulation in Europe, but growth remains very weak at a time when U.S. jobs data on Thursday may show the non-farm economy created more than 200,000 new jobs for the fifth-month running.

Another short term question is where BNP Paribas will get the almost $9 billion it has agreed to pay U.S. authorities in a settlement for sanctions. Some traders were speculating on Monday that the bank has not hedged the bulk of any such dollar order and will need to do it in the market.

"The upside for the euro is likely to be limited," Stannard said. "Post-ECB I would expect the euro to come back under pressure. The overall monetary policy stance generates a soft environment for the euro."

The euro was 0.04 percent lower at $1.3689.

AUSSIE BOUNCE

The Australian dollar, meanwhile, rose after a central bank policy statement was less dovish than some market participants had expected and stopped short of explicitly talking down the currency.

The Reserve Bank of Australia kept its cash rate steady at a record low of 2.5 percent as widely expected, after minutes of its last policy meeting in June predicted subpar economic growth for the whole year ahead.

"The market was probably expecting an accompanying statement today tuned with dovish overtones, but the statement was less dovish than the minutes conveyed," said Sue Trinh, senior currency strategist at RBC Capital Markets in Hong Kong.

The Aussie last traded at $0.9455, up about 0.2 percent after rising as high as $0.9458, its highest since mid-April. Resistance lies at its 2014 peak of $0.9461, Trinh said.

The Australian currency was also bolstered by upbeat data from its largest trading partner; China's official Purchasing Managers' Index rose to 51 in June from May's 50.8, while a separate private survey by HSBC also showed the PMI expanded for the first time in six months.

The dollar index edged slightly up on the day to 79.824, pulling away from 79.759 - its weakest since early May.

San Francisco Fed President John Williams reinforced the idea that the U.S. central bank would keep interest rates near zero for at least another year, even as he expressed optimism the economy is on the recovery path.

Against the yen, the dollar inched up on the day to 101.48 , but remained not far from Monday's six-week low of 101.23 yen.

(Additional reporting by Lisa Twaronite in Tokyo and Ian Chua in Sydney)

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