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FOREX-Dollar sells off on Fed statement; euro at 6-wk high

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Tue Sep 21, 2010 4:03pm EDT
* Dollar sells off vs euro on Fed statement

* Dollar falls below 85 yen

* Aussie at two-year high vs dollar

(Rewrites, adds details; updates prices)

NEW YORK, Sept 21 (Reuters) - The dollar fell sharply against the yen
and euro on Tuesday after the Federal Reserve suggested it stood ready
to further stimulate the U.S. economy, raising fears it may print more
dollars to do so.

The euro surged to a 6-week high against the dollar and broke above
its 200-day moving average for the first time since January,
suggesting more gains were ahead. The yen powered higher against the
greenback as well, breaking through the 85 level for the first time
since Japanese authorities intervened to weaken the currency last week.

The Fed statement suggested the U.S. central bank may be preparing to
do more to keep unemployment from rising and prices from falling. The
sentiment confirmed investors' fears ahead of the meeting.

The Fed made no shift in monetary policy at the end of a one-day
meeting, although it expressed greater concern about the sluggish pace
of economic growth and uncomfortably low inflation than it had when it
last met in August. For more, see: [ID:nN20109053].

"Bottom line, the Fed may have to do more in terms of stimulus before
the end of the year, and that is obviously pushing yields lower," said
Joe Manimbo, currency trader at Travelex Global Business Payments in
Washington. "In turn it makes returns on dollar-denominated assets
even less attractive."

In late afternoon trading in New York, the euro was up 1.3 percent at
$1.3238 EUR= after climbing as high as 1.3281, its highest since Aug.
9, according to Reuters data.

As long as the euro holds above the $1.3030 area, some technical
analysts see its Aug. 6 high of $1.3334 on EBS as an upside target.
The high, according to Reuters data that day, was $1.3333.

The euro also breached technical resistance at its 200-day simple
moving average.

Long-term moving averages are stronger resistance levels in this
instance. Once breached, the new level would become long-term support
for the currency.

The 14-day simple moving average crossed the 50-day simple moving
average, using Reuters analytics, which is also bullish for the euro
in the near term,

"It seems that the U.S. economy is at that point where the Fed is
actually closer to easing monetary policy," said Nick Bennenbroek,
head of FX strategy at Wells Fargo in New York. "So we have seen the
dollar sell off against the euro."