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Dollar off 9-month high vs yen on profit-taking

Published: March 5, 2012 | 8:22 am
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The dollar on Monday pulled away from a nine-month high hit on Friday as traders booked profits after the U.S. currency rose nearly 8 percent in about a month.

Traders said the dollar was ripe for some profit-taking following its strong gains.

The dollar fell 0.6 percent versus the yen to 81.31 yen, retreating from a high of 81.873 yen on Friday on trading platform EBS, the weakest level for the Japanese currency since late May 2011.

As of Friday, the dollar had risen by about 7.7 percent from a three-month low hit near 76 yen in early February.

On Monday, yen buying by offshore institutional investors also weighed on the dollar, which extended its losses after triggering some stop-loss sell orders at levels below 81.50 yen, traders said.

“There is perhaps a little more room for dollar/yen to go higher in the next few days, with short-term players now going short yen, but we see the upside limited,” said Christopher Gothard, head of FX for Brown Brothers Harriman in Hong Kong.

One point to watch is the fate of a Greek debt swap deal, Gothard said. The debt swap agreement is a key part of Greece’s bailout program. “Any bad news is likely to lead to a stronger yen,” he said.

Bondholders have until March 8 to join the agreement under which they will exchange their existing Greek government bonds for new paper in a swap deal that will see the nominal value of their holdings cut by 53.5 percent.

Charles Dallara, managing director of the International Institute of Finance (IIF), the chief negotiator for the body representing private sector holders of Greek bonds, has expressed confidence that the deal will be completed successfully.

Another focal point is U.S. jobs data for February due on Friday.

“If the jobs data comes in strong, we could see the dollar rise another 1.5 yen or so,” said Daisuke Karakama, market economist for Mizuho Corporate Bank in Tokyo, adding that the dollar may rise toward 83 yen in that scenario.

Still, there is reason to take a more cautious view on the jobs data and the dollar, he said. For example, the employment component of the Institute for Supply Management’s manufacturing survey slipped in February compared to the previous month.

If U.S. jobs data comes in weak and U.S. equities pull back at the same time, that could drag the dollar lower versus the yen, Karakama said, adding that the dollar may head towards 80 yen in that case.

The yen has been under pressure after the Bank of Japan’s surprise monetary easing in mid-February, with its drop gaining momentum after breaching technical support levels.

Underscoring the recent shift in sentiment toward the yen, data showed currency speculators have turned short on the yen for the first time since May 2011, according to latest figures from the U.S. Commodity Futures Trading Commission.

Traders said the dollar’s weekly close above a major retracement level in the 81.60-65 yen area was positive. The next major hurdle is seen at the 100-week moving average around 82.10 yen or so.

Support for the dollar lies near 80.89 yen on the weekly Ichimoku chart, a popular technical analysis tool.


The euro inched up 0.1 percent to $1.3204, having touched a two-week low of $1.31806 at one point on Monday.

Not helping the single currency, Spain on Friday set itself a softer budget target for 2012 than originally agreed under the euro zone’s austerity drive, putting a question mark over the credibility of the European Union’s new fiscal pact.

Since the European Central Bank’s second injection of around half a trillion euros of cheap three-year funds last week and a surprise policy easing by the Bank of Japan a few weeks ago, both the euro and the yen have come under pressure.

BNP Paribas analysts said the theme at play was the notion that hedge funds and real money accounts were switching their allegiances with regards to favored funding currencies, from the U.S. dollar to the euro and to a lesser extent the yen.

Against a basket of currencies, the dollar rose to as high as 79.489 .DXY earlier on Monday, its highest level since mid-February.


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