Euro hovers near 11-month high; Fed, jobs data ahead

NEW YORK (Reuters) - The euro hovered near an 11-month high against the dollar on Monday after data showed U.S. durable goods orders rose more than expected last month and on growing optimism about the euro zone economy.

The dollar had also earlier hit a 2-1/2-year high against the yen for a third consecutive session, before surrendering gains. Analysts expect more yen weakness on a view that Japan will adopt further monetary stimulus to fight deflation.

Moves in major currencies were limited ahead of key economic events later in the week, including a Federal Reserve meeting and the monthly jobs data for January.

"A busy week ahead of U.S. events and data caused investor sentiment to largely start the week in neutral," said Joe Manimbo, senior market analyst at Western Union Business Solutions in Washington.

The euro was little changed at $1.3461, slipping from the 11-month high of $1.3479 hit last Friday. Traders cited option expiries at $1.3400, which could act as support in the near term.

"After such a strong move up (in euro/dollar) it is normal for markets, at least in the short run, to not see much additional buying and see some profit-taking," said Ulrich Leuchtmann, head of FX research at Commerzbank.

"There is still some room for euro to go higher, but the road upwards will be characterized by bumps, pauses and even by corrections."

Traders said major resistance levels for the euro/dollar include its 2012 high of $1.3486 and the 50 percent retracement from the high in May 2011 to the low in July 2012 at $1.3492.

The euro rallied on Friday after data showed European banks plan to repay more than expected of the loans they borrowed from the European Central Bank during the debt crisis, indicating growing confidence.

German data also provided evidence that Europe's largest economy is gathering pace after contracting late last year.

The European Central Bank is the first major central bank to start winding back some of its unconventional monetary policy measures, unlike the U.S. Federal Reserve and Bank of Japan, which are buying bonds open-endedly to stimulate growth. More stimulus usually weighs down on a currency as it increases its supply.

Positioning data on Friday showed speculators had increased their net long euro positions, while bets for further weakness in the dollar rose to its highest since the week of October 2.

In the options market, traders reported demand for euro calls, which are bets on more gains. The one-month risk reversals traded at 0.1 vols in favor of euro calls, having flipped from puts towards the end of last week.

The euro was particularly strong on the crosses having touched a fresh eight-month high against the Australian dollar of A$1.2950 and a 13-1/2-month high against the British pound of 85.56 pence on Monday.

Morgan Stanley, in a note, recommended investors buy the euro against the Australian dollar, targeting it to rise to A$1.3400, with a stop-loss at A$1.2600, as more investors, especially those in Japan, look to buy European assets.

The euro rose to a 21-month high of 122.91 yen, but slipped to trade down 0.1 percent on the day at 122.18 yen.

The dollar was little changed at 90.86 yen, having earlier risen to 91.25, the strongest since June, 2010. Traders cited bids at 90.50 yen, which could act as support.

Increasing rhetoric from Japanese authorities that they are open to the dollar rising to the 100 yen level has helped weaken the currency further, raising eyebrows abroad and sparking talk that it is triggering a currency war.

The yen's weakness also stemmed from a rise in U.S. bond yields, with which the currency has a close inverse correlation. The 10-year U.S. bond yield shot up on Monday, helped by U.S> durable goods data.

(Additional reporting by Anooja Debnath in London; Editing by Nick Zieminski)