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FOREX-Dollar index hits 3-yr low as euro, Aussie surge

Published 04/21/2011, 04:29 AM
Updated 04/21/2011, 04:32 AM
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* Dollar slammed across the board

* DXY break of chart support targets 2008 all-time low

* Euro/dollar above $1.46, poised to push towards $1.50

* Risk of profit-taking seen before Easter holidays

By Jessica Mortimer

LONDON, April 21 (Reuters) - The dollar tumbled to a three-year low against a basket of currencies on Thursday as strong corporate earnings buoyed risk appetite in illiquid pre-Easter trade, threatening to drive it to historic lows.

The euro jumped to 16-month highs and looked on course for a move towards $1.50 if it holds onto these gains. Currencies like the Australian and Canadian dollars also surged, though some traders warned the moves could reverse as investors take profit on short dollar positions before the long Easter weekend.

The chart outlook for the greenback looked dire after it tumbled through a 74.17 trough hit in November 2009, a move that may spark a run towards the 70.698 all-time low hit in 2008.

A series of records have been broken, with gold vaulting to all-time highs above $1,500 an ounce and the Aussie powering to 29-year peaks above $1.07, while the Singapore dollar, Swiss franc hit all-time highs.

However, there were signs of profit-taking, with the Aussie stumbling ahead of options barriers at $1.0800 after surging as high as $1.0775.

"Strong earnings reports from a lot of companies has driven risk appetite and we have seen huge moves in all dollar crosses, but it would be surprising if we didn't see some profit-taking," said Richard Falkenhall, currency strategist at SEB in Stockholm.

The outlook was dim for the dollar, with this week's threat by Standard & Poor's to cut the United States' prized AAA rating reminding the market of the huge debt problems facing the world's largest economy.

"We are seeing a switch in focus from European to U.S. sovereign debt problems," Falkenhall said.

The euro was up 0.8 percent at $1.4636 after jumping to a 16-month high of $1.4641 on EBS, triggering stops on the way up after breaching an option barrier at $1.4550 and the January 2010 high at $1.4583.

The single currency looked poised for further gains, with the path clearing for a run at the 2009 peak at $1.5145.

"We could see some profit taking/position reduction following these strong moves ahead of the Easter weekend. Bear in mind that liquidity is drying up with much of Europe and various Asian countries on public holidays from tomorrow," a London-based trader said.

The dollar index fell 0.7 percent from late New York trade to 73.799, the lowest since August 2008 -- just before it surged during the Lehman Brothers collapse as investors scrambled for safe-havens.

EURO RESILIENT

The euro was buoyant, shrugging off ongoing worries about the euro zone crisis, underscored this week by reports that Greece may restructure its debt in coming months.

A solid auction of Spanish debt the previous day helped provide some reassurance that the problems plaguing Greece, Ireland and Portugal would not spread to the country seen as the next most vulnerable in the euro zone.

Traders and analysts also cited central banks recycling dollar proceeds into the euro, Aussie and other currencies.

Asian authorities have increasingly had to intervene to buy dollars to limit the gains in their currencies and then shifting them into other currencies and assets. Traders said this was creating a vicious circle that drags the dollar lower.

The Australian dollar was up 0.5 percent at $1.0758 after pushing to its highest since being floated in the early 1980s. For the week, the Aussie was up 1.9 percent, making it the best performer among G10 currencies.

"The AUD is burning, burning hot," said one trader at another European bank in Singapore.

The dollar dipped 0.5 percent against the yen to 82.05 yen, having earlier broken chart support with a fall below 82.00 -- the intraday high reached on March 18 when the G7 intervened to sell the yen.

Trading activity may start to slow before the Easter holidays, with European markets shut both Friday and Monday.

(Additional reporting by Eric Burroughs in Tokyo and Masayuki Kitano in Singapore; Editing by Toby Chopra)

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