Euro up more than 1% for week
NEW YORK (MarketWatch) -- The euro rose against the dollar on Friday, leaving the shared currency at its highest level in more than three weeks, as traders position themselves ahead of Greece's weekend elections.
The euro (EURUSD) rose to $1.2646, its highest since May 22, from $1.2613 in North American trading late Thursday.
It's up 1.1% from a week ago, its biggest advance since late February.
The dollar index (DXY) , which measures the greenback against a basket of six major currencies, fell to 81.584 from 81.917 Thursday. It's down 1.1% this week.
Traders are heavily positioned for a further decline in the euro, which could mean some reversal of those positions given the unknown outcome, strategists said.
Heightened uncertainty surrounds about whether the Greek populace will choose a party that backs the existing bailout or one that rejects it, raising the risk that the country will try to exit the euro zone. Read more about run-up to Greece's election.
"I don't think the euro bounce is going to be long-lasting," said Jose Wynne, head of U.S. foreign exchange strategy for Barclays Capital. "The downside risks are considerable. Traders are looking to protect their positions ahead of the weekend after being short."
The euro will fall to $1.15, he said.
The euro jumped late Thursday after a report indicated that central banks are preparing for coordinated action to provide liquidity if necessary after Greece's elections. Read more in Thursday's dollar report.
"My main thesis continues to be that policy makers will step in to mitigate downside equity and financial market contagion risks," said Andrew Busch, global currency and public policy strategist at BMO Capital Markets. "There is little appetite for risk-off selling as equity markets are broadly up and the euro remains around $1.2600 levels."
Others have doubts whether such reports or rumors really have any credibility.
"They fail to convince," Commerzbank currency strategists wrote in emailed comments. "Just in case anyone has failed to notice: the markets have been flooded with liquidity over the past few months and at least in the euro zone there is no evidence of a credit crunch (i.e., banks refusing to offer loans despite strong demand). Further liquidity flows would hardly do the trick."
Bank of Japan hangs back
The biggest mover among major currencies was the Japanese yen, which jumped after the Bank of Japan left its interest rates and size of monetary stimulus unchanged, holding back on policy actions ahead of the weekend Greece elections. Read more on the Bank of Japan decision.
Less easing tends to be positive for a currency, but Japanese officials have also often said they don't want a stronger yen because of its impact on exporters.
BOJ inaction, "is a bit like waking up to find I'm still bald, overweight and middle-aged. Some things don't change," said Kit Juckes, head of foreign-exchange strategy at Société Générale.
The dollar (USDJPY) dropped to ¥78.70, from ¥79.33 Thursday.
The euro (EURJPY) retreated to ¥99.50 from ¥99.74.
Barclays strategists said they now expect officials to approve a further £50 billion in quantitative easing next month.
"The primary reason for our change of view is the deepening of the euro crisis, following the renewed turbulence in Spain," they wrote in a note