By Vicki Schmelzer

NEW YORK, Dec 2 (MNI) - Profit-taking and paring back of positions ahead of Thursday's European Central Bank's decision drove the euro and other currencies lower Wednesday, although the pair held above psychological support at $1.5000.

The ECB is expected to leave the benchmark refi rate unchanged at 1.0% and to upgrade its staff forecasts on growth and inflation.

In addition, the ECB should offer additional insight into their "exit strategy" for normalizing monetary policy.

In that vein, the ECB's announcement of the terms for the one-year tender for the December 16 auction will be closely eyed.

A Market News International sources story, released Tuesday, quoted one senior official stating that "there is no pressure for the ECB to announce a schedule this Thursday."

"The decision that the ECB will not roll over its 12-month refi into next year should be enough to show that the ECB is serious about its exit," the official said.

Nevertheless, another source stressed that "it would be reasonable for the ECB to keep the refi rate on hold until Q3 [2010] -- in line with other major central banks."

ECB angst and overall profit-taking ahead of Friday's U.S. non-farm payroll data provided the dollar with a modest lift, but sentiment towards the greenback heading into year-end remained bearish.

Sebastien Galy, senior currency strategist at BNP Paribas looked for the euro "to trade massively higher" in coming sessions.

Barring an ECB surprise Thursday, which seems unlikely, market demand is likely to underpin the pair into year-end, he said.

"We've gone through the main risk event," Galy observed, referring to the recent Dubai World debt default.

Those who unwound risk friendly long positions are now more willing to get back in, he said.

In addition, the euro is likely to see added support from European bank flows, with several (German/Greek/Dutch) banks exiting overseas assets to bring money home after being ordered to shrink their balance sheets (in some cases in half) by the EC Commission.

"Some banks have to deleverage," Galy reminded.

BNP Paribas has an end of year euro forecast of $1.5400, "with the risk that we get there sooner," he said.

Euro-dollar was trading at $1.5045 Wednesday, after trading in a $1.5032 to $1.5110 range.

A clear cut break of the 2009 highs near $1.5140-45, seen on two occasions last week, would target further followthrough to $1.5200, $1.5250, and $1.5300, traders said.

In other currencies, dollar-yen edged higher as market players unwound yen long positions in the wake of mixed commentary from Japanese officials about the prospects of Bank of Japan intervention.

While traders do not expect unilateral intervention until dollar-yen falls well below Y85, perhaps even Y80, there was the sense that some of the yen demand seen in recent sessions was overdone.

CFTC data released Monday, for positions as per November 24, showed speculative positions holding a net yet long of 51,710 contracts, the largest net of 2009 and the largest net long since April 29, 2008.

In subsequent weeks after posting a net yen long of 50,000-plus contracts, the net yen long typically shrinks dramatically.

The February 3, 2009 net yen long of +50,518 was followed by a net yen short of -4,696 on March 17, 2009.

The July 15, 2008 net yen long of +50,106 was followed by a net yen short of -12,081 on August 5, 2008 and the April 29,2008 net yen long of +55,450 was followed by a net yen short of -12,747 on June 24.

On the February/March turnabout in yen positions, dollar-yen rose from Y89.25 (close) February 3 to a high of Y99.67 March 5, and then closed at Y98.60 March 17.

Dollar-yen was trading at Y87.44 Wednesday, on the high side of a Y86.60 to Y87.50 range.

Dollar-yen tumbled to a fourteen-year low near Y84.82 last Friday.

Profit-taking may mean that yen long positions have been pared back, although many players who missed the down move may have sold into the rally seen since, traders said.

In other markets, spot gold closed at $1,215.75/oz Wednesday, down from the new life-time high of $1,216.75, posted earlier, and up from an overnight low of $1196.00.

Traders noted talk of stop-loss buy orders, to be triggered on a break of $1,220.

Some sources say any gold buying will be option-driven instead, if $1,220 is penetrated.

James Moore, precious metals analyst at TheBullionDesk, said gold "looks set to make further headway as the metal is swept along by increasing systemic risk appetite, longer-term inflation concerns and diversification from the dollar -- with $1,250 the next likely target."

Tuesday's announcement by Barrick Gold, taken as a sign of producers confidence in gold prices going forward, "could trigger further sharp price gains in the short-term, speeding up the pace of close-outs amongst those with remaining hedge commitments," he said.

On the stock front, the S&P 500 closed flat at 1109.24, down from the new 2009 high of 1115.55 posted earlier and up from a low of 1105.50.

At the earlier peak, the index was up 23.5% year-to-date.

** Market News International New York Newsroom: 212-669-6430 **