FOREX-Yen gains, euro squeezed as recovery doubts creep in

* Dollar holds Friday gains, euro under pressure
* Strong China data fails to shift risk averse mood
* Canadian dollar slips on risks to oil pipeline
* Graphic: World FX rates https://tmsnrt.rs/2RBWI5E

By Tom Westbrook
SINGAPORE, Jan 18 (Reuters) - The dollar clung to gains on
Monday and the Japanese yen edged higher as softening U.S.
economic data and rising global coronavirus cases kept investors
cautious, while lockdowns and Italian political turmoil held the
euro under pressure.
The euro EUR= dipped to a six-week low of $1.2066 in Asia
and fell to a one-month low of 125.20 yen EURJPY=R . The yen
JPY= was last up about 0.2% at 103.70 per dollar and it also
rose on the risk-sensitive Australian and New Zealand dollars.
The Antipodeans were soft against the greenback and the
Aussie AUD=D3 touched a one-week trough of $0.7679, while the
kiwi NZD=D3 hit a three-week low of $0.7117. AUD/
Better-than-expected Chinese economic data headed off
further selling, but was not enough to shift currency traders'
mood. The safety bid has added another layer of support for the
dollar since the Democrats won control of U.S. Congress a
fortnight ago, which triggered a surge in yields as investors
priced in bigger stimulus from a borrow-and-spend Biden
administration.
The mood soured after Friday data showed U.S. retail sales
fell for a third straight month in December, stoking worries
that the recovery is running into trouble as health authorities
warned that the worst of the latest COVID-19 wave might be yet
to come.
Europe is also facing surging cases and an Italian
government that must survive crucial votes in parliament on
Monday and Tuesday in order to cling to power. The dollar index steadied after touching a one-month high
and last traded at 90.827. Sterling GBP= on Monday sat near at
a one-week low of $1.3567.
Nevertheless, many investors appear to be sticking in
crowded dollar shorts, which hit an almost 10-year high last
week, even though the bounce has carried the dollar index about
1.9% higher and pushed the euro more than 2% lower in two weeks.
"The market is in a bit of a wait and see mode debating
about the dollar, in terms of whether higher U.S. yields could
provide support or whether we see further decline," said Bank of
Singapore currency analyst Moh Siong Sim.
"I think the balance of risks is still in favour of a
reflationary environment, and therefore risk sentiment should
stay positive and we should see a further dollar decline."
Elsewhere, the Canadian dollar CAD=D3 slipped 0.2% after
reports that Joe Biden plans to soon rescind permission for the
Keystone XL pipeline, a project which would link oil sands in
Alberta to refineries in Texas.
Later in the week, President-elect Biden is due to be
inaugurated in a heavily-guarded Washington. Tensions are high
after mob violence a few weeks ago.
Biden's pick for Treasury Secretary, Janet Yellen, is
expected to rule out seeking a weaker dollar when testifying on
Capital Hill on Tuesday, the Wall Street Journal reported.
<^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^
World FX rates https://tmsnrt.rs/2RBWI5E
^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^>