FOREX-Euro inches higher but expectations for dovish ECB cap gains

* Currencies still driven by tug of war between central
banks
* Australian dollar reaches 10-day high after Chinese data
* China's offshore yuan nudges upwards
* Graphic: World FX rates in 2019 http://tmsnrt.rs/2egbfVh

(Updates prices, adds context)
By Olga Cotaga
LONDON, July 15 - The euro remained within its recent
trading range against the dollar on Monday, its progress capped
by expectations for a dovish European Central Bank meeting next
week and after investors turned more bearish on the currency.
Foreign exchange markets were quiet on Monday and volatility
low ahead of major central bank policy meetings next week. The
Australian dollar - enjoying a boost from encouraging Chinese
economic data - was the only real mover.
Money markets have priced in an ECB rate cut of 10 basis
points in September and another one in March. The meeting on
July 25 may reinforce those expectations.
Investors expect the Federal Reserve to cut its key rate by
25 basis points at the end of July, followed by another cut in
September.
Forecasts for dovish moves by both central banks have kept
euro/dollar stuck in a narrow range for weeks.
The euro EUR=EBS was up 0.08% at $1.1281, still within the
recent range of $1.14 to $1.11.
An index that tracks the dollar against a basket of six
other major currencies .DXY was flat at 96.761.
Investors are more bearish on the euro, since Treasury
yields look set to remain among the highest in developed markets
despite future Fed rate cuts, analysts say.
However, the euro "should recover somewhat as it looks to me
like the eurozone economy and expectations are bottoming," said
Marshall Gittler, chief strategist at ACLS Global.
Speculators added to their short positions against the euro
in the week to July 9, according to U.S. Commodity Futures
Trading Commission data. Leveraged funds extended their net long
dollar positions for the first time in seven weeks.
Some analysts are surprised the euro is not gaining as the
market prices in Fed easing.
"For the world's most-traded and least-exciting currency
pair, a dovish Fed, a weak-dollar President and a hint of global
economic optimism, 'ought' to mean EUR/USD rallies. If it can't
stage a move back to 1.14 in the next week or two, what on earth
could make it rally?" said Kit Juckes, FX strategist at Societe
Generale.
Elsewhere, the Australian dollar reached a 10-day high on
stronger-than-expected economic data from China, which some
analysts saw as signalling that moves to revive spending in the
world's second-biggest economy are working.
China's industrial output rebounded in June from a 17-year
low in May. June retail sales surged 9.8% from a year earlier.
The Chinese economy grew at the slowest rate in
nearly 30 years, though this was expected.
The Aussie AUD=D3 gained 0.2% to $0.7037 against the U.S.
dollar, its highest since July 4.
China's offshore yuan was up 0.1% to 6.8742 yuan per dollar
CNH=EBS .
Sterling was lower by 0.1% at $1.2565 GBP=D3 and by 0.2%
against the euro to 89.81 pence EURGBP=D3 .
The Swiss franc was up 0.1% at 1.1080 francs per euro, near
a three-week high EURCHF=EBS .