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IMM currency futures end higher, euro drifts late

CHICAGO: IMM currency futures ended higher on Wednesday, although the March euro failed at a test of dollar parity early and drifted for the last half of the pit session.

March yen set a five-month low overnight but failed to retest that level in pit trade, ending slightly higher. March Swiss francs and sterling rose on less active trade.

March Canadian and Australian dollars ended with moderate gains as firm gold propped the commodity-based currencies.

U.S. stocks and bonds softened intraday and German stocks made a fourth record close in five sessions, adding support for the March euro, and Swiss franc by association, traders said.

The March euro, Swiss franc and yen set daily highs early, then lacked momentum later to test overnight lows.

The March euro bounced early on moderate institutional buying that was met with decent selling, traders said.

"It just had a tough time with parity," one floor analyst said. "It is not quite ready to breach that level."

Traders said market sentiment appeared to be shifting in favour of the euro. They cited a muted reaction to seasonally adjusted December German industrial output data.

Industrial output rose 0.7 percent versus average forecasts for a 1.3 percent rise, but analysts said that it was largely in line with expectations and the euro firmed.

A report like that might have broken the euro by 1 U.S. cent a few sessions ago, analysts said. The March euro held psychological support at $0.9900 and has more support near $0.9873.

Euro zone officials verbally supported the currency. Expectations that Japanese gross domestic product data will show a decline in the October to December quarter made the yen more desirable to short recently, traders said.

Bundesbank President Ernst Welteke said the euro has strong potential to appreciate and European monetary policy did not neglect the euro exchange rate. He said last week's European Central Bank 25-basis-point tightening reflected the fact that costs and prices had risen more than expected recently.

March yen set a day's high by one tick at $0.009254 early. The contract briefly dipped lower but failed to test the five-month low of $0.009161 set overnight. Resistance is seen near $0.009265 and support at $0.009136.

March sterling bounced to $1.6158 in thin afternoon trade. The market has priced in expectations that the Bank of England will tighten rates by 25 basis points at the Monetary Policy Committee meeting that ends on Thursday, traders said.

Traders said March sterling has resistance from $1.6175 to $1.6206. Piercing that area could lead to a test of $1.6290.

At settlement, March yen was $0.000014 higher at $0.009208, euros up $0.00640 at $0.99450, Swiss francs up $0.0032 at $0.6187, sterling up $0.0034 at $1.6140, Canadian dollars up $0.0016 at $0.6930, Australian dollars up $0.0017 at $0.6350 and Mexican pesos unchanged at $0.105225.-Reuters