FOREX-Euro hits 6-week low; Aussie lifted by solid retail sales

Reuters

* Euro stays on defensive, hits lowest since Sept. 18

* Move seen exacerbated by thin trading conditions

* ECB meeting on Thursday key for common currency

* Aussie edges up after firm Australian retail sales

By Masayuki Kitano and Ian Chua

SINGAPORE/SYDNEY, Nov 4 (Reuters) - The euro touched asix-week low on Monday after suffering its biggest drop in overa year last week as pressure mounted on the European CentralBank to cut interest rates to shore up growth.

The euro skidded below chart support around $1.3460/80 andfell to as low as $1.3442 on trading platform EBS, its lowestlevel since Sept. 18. It later trimmed its losses and was lastdown 0.1 percent on the day at $1.3478.

Market players said there was no clear trigger for theeuro's latest drop, adding that meagre trade and stop-lossselling may have dragged the common currency lower.

"Just thin Asia liquidity with Japan on holiday. I wouldn'tread too much into it," said Gareth Berry, G10 FX strategist forUBS in Singapore.

The timing of the euro's drop seemed to roughly coincidewith comments from Federal Reserve Bank of Dallas PresidentRichard Fisher, but some market players were sceptical that hisremarks had much of an impact.

"I think there may have been some stops," said a trader fora Japanese bank in Singapore, referring to stop-loss selling inthe euro.

Speaking at a conference of business economists in Sydney,Fisher said he was concerned that corporate credit spreads havenarrowed too much, and added that he does not see the Fed'sbalance sheet rising to $6 trillion or more.

The euro remained on the defensive ahead of the ECB's policymeeting on Thursday.

After data last week showed a plunge in euro area inflation,a growing number of commentators, including UBS and RBSanalysts, reckons a rate cut could come as soon as Thursday'spolicy meeting.

"Although market expectations for ECB action have grown dueto the weak inflation print, we think a December move is muchmore likely," analysts at Barclays Capital wrote in a note, adding an that if the ECB left its policy rate unchanged onThursday there could be a knee-jerk bounce in the euro.

"However, we expect dovish rhetoric at the press conferencefrom ECB President Mario Draghi to keep a December move in play.We would therefore recommend using any EUR rally as a betterentry level to re-engage in EUR/USD downside."

Against the yen, the euro eased 0.1 percent to 133.10 yen, having fallen as far as 132.60 on Friday, its lowestin three weeks.

Pressure on the euro helped lift the dollar to a six-weekhigh versus a basket of major currencies. The dollar index roseto 80.930, its highest level since Sept. 18. It last stood at80.769, up 0.1 percent on the day.

The dollar index is now testing resistance at 80.835, the 50percent retracement of its drop from early September to lateOctober.

The dollar was little changed against the yen at 98.76 yen. Trading activity in the dollar versus the yen is likelyto be subdued in Asia on Monday with Japanese markets shut for apublic holiday.

The Australian dollar edged higher, supported bystronger-than-expected Australian retail sales.

Another factor supporting the Aussie dollar was upbeatChinese data on Sunday showing activity in China's servicessector expanded at the fastest pace in 13 months in October -- afurther indication the world's No. 2 economy has stabilised.

The Australian dollar rose 0.4 percent to $0.9480,edging away from Friday's three-week trough of $0.9421.

Up next for the Australian dollar is the Reserve Bank ofAustralia's policy meeting on Tuesday. All 23 analysts polled byReuters on Friday expect the RBA to keep its cash rate unchangedat a record low 2.5 percent.

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