Dollar Hovers Near 2-Month High Ahead Of Yellen Testimony, Euro Pares Losses

New York (Nov 11)  The U.S. dollar traded lower Monday, paring gains made after a stronger-than-expected jobs report, yet the index held near a two-month high against a basket of major currencies with the Federal Reserve's policy outlook squarely in focus for the week ahead.

The dollar index eased on Monday to 81.20 but stayed within sight of a two-month high of 81.482 set on Friday. The USDIX index so far recorded an intraday high at 81.42 and low at 81.20.

The dollar made solid gains Friday after data showing the U.S. economy added 204,000 jobs in October, beating expectations for a more modest 100,000 increase. While unemployment ticked higher to 7.3 percent.

The data was even more remarkable as it came in a month when a budget standoff in Washington forced a 16-day government shutdown. The result raised questions over how long the Federal Reserve will delay its plans to slow or taper the rate of its monetary stimulus.

Despite data, the Federal Reserve Chairman Ben Bernanke and other top policymakers said there is still plenty of room for the jobless rate to fall further, suggesting continued support for the central bank`s massive stimulus program.

Clues to the Fed's plans for tapering may surface Thursday, when Janet Yellen, the nominee to chair the Federal Reserve will be questioned by the Senate Banking Committee. Bernanke was also due to give a question-and-answer session on Wednesday.

Against the Japanese yen, the dollar sat at ¥99.073, virtually flat from ¥99.00 at the end of the previous week. Resistance levels 99.80 – 100.00 should be breached to confirm another bullish wave.

The euro struggled to make much headway as the Fed and the European Central Bank`s diverging monetary policy paths prompted investors to sell the single currency at higher levels last week. The ECB surprised the market by cutting its main interest rate to a record low 0.25 percent.

Amid lower-than-usual volumes, the EURUSD traded higher at $1.33900, far from a two-month trough of $1.3295 plumbed last Thursday after ECB's rate cut decision.

Trading below 1.3385 might extend bearishness to touch the first extended target at 1.3260 while breaching 1.3555 will end the bearish pattern's effect.