Euro Edges Higher But May Soon Slip Back

The euro rose Monday, extending its gains from the end of last week, when the currency rallied on the back of surprisingly solid U.S. jobs numbers, though some analysts said further upside for the euro may be limited.

By Monday afternoon in East Asia, the euro EURUSD -0.28% had edged higher to $1.2391, up from its $1.2375 level late Friday, when the European unit shot up by some 2 U.S. cents.

The euro’s rally on Friday came as investors moved into riskier currencies after U.S. nonfarm payrolls rose by a stronger-than-expected 163,000 in July. Read more on Friday’s forex action.

The euro’s “reaction to the U.S. jobs data was particularly interesting, hitting a high of $1.2444 as stop-losses were triggered on the upside,” wrote Crédit Agricole forex strategy chief Mitul Kotecha in a note Monday.

“Further [euro] gains will be difficult to achieve, however. Speculative market positioning reveals that [euro] short positions have dropped to their lowest level in several weeks, suggesting less scope for further short-covering,” Kotecha added.

Royal Bank of Canada senior currency strategist Sue Trinh said news reports out of Europe will determine the euro’s short-term direction.

“We will be on alert for any tape-bombs, particularly a formal aid request from Italy or Spain (although it seems that pressure on Spain and Italy might have to intensify further before the governments capitulate and request assistance),” Trinh wrote Monday.

Among other currencies on the rise Monday, the Australian dollar AUDUSD -0.21% inched up to $1.0566 from late Friday’s $1.0555.

On Tuesday, the Reserve Bank of Australia is due to hand down its latest policy decision. RBC’s Trinh expects no change in the benchmark interest rate — currently at 3.5% — this week, but sees a quarter-point cut sometime in the October-December quarter, with the rate eventually hitting 2.75% by the middle of next year.

The Japanese yen USDJPY -0.33% also moved higher, as the dollar slipped to ¥78.44 from ¥78.59 at the end of last week.

With its rivals gaining ground, the U.S. dollar traded broadly lower, as the ICE dollar index DXY +0.29% — which tracks the currency against six others — dropped to 82.328 from 82.390.

The WSJ dollar index BUXX +0.13%, which likewise gauges the greenback’s moves against some of the world’s other heavily traded currencies, dropped to 71.46 from 71.51 late Friday in North America.

The British pound GBPUSD -0.25% also lost ground Monday, easing to $1.5617 from $1.5644.