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Yen hits 9-month low vs. dollar, euro holds firm

Published: February 27, 2012 | 8:59 am
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The Japanese yen slid to a nine-month low against the dollar on Monday as the break of a key chart level triggered stop-loss selling, while the euro held firm ahead of a fresh injection of liquidity by the European Central Bank.

The Japanese currency has retreated in recent weeks following a surprise easing by the Bank of Japan, a fall in the country’s current account surplus and a rise in short-term U.S. bond yields.

“Last year the yen was bought by default (because of the euro zone crisis) as investors had few alternatives. These positions are now being unwound,” said a trader at a Japanese bank.

The dollar rose to a high of 81.661 yen in early Asian trade on Monday, a gain of more than 7 percent since the start of month, as buying accelerated after it broke above major resistance at 80.94 on Friday.

Chartists saw the break as a major bull sign as it was the first time since 2007 that the dollar closed above that level on the Ichimoku cloud, suggesting the dollar’s long decline since 2007 may be coming to an end.

Yet some market players still think it is premature to make that call, with the dollar coming under gravity from the specter of dovish policy by the U.S. Federal Reserve.

Indeed, the dollar failed to sustainably break a resistance at 81.62, a 61.8 percent retracement of its decline last year and later slipped back to around 81.14 yen, slightly below late New York levels, as Japanese exporters and speculators offloaded dollar.

“The dollar/yen appears to be coming close to a peak. The latest fall in the yen has been primarily driven by a fall in short-term Japanese bond yields but there’s limited room left for them to fall,” said Hideki Amikura, forex manager at Nomura Trust.

Junya Tanase, currency strategist at JPMorgan, also said that in recent times, the yen’s decline normally lasted one to one and a half month.

“It’s been about one month and a half since the yen’s effective exchange rate peaked in Jan 11. So if the past pattern is to be repeated, the yen’s decline is likely to come to an end soon,” he said.

The euro climbed to 109.915 yen, the highest since October 31, before ceding much of gains to trade at 109.05yen.

CHEAP FUNDING

Against the dollar, the single currency stood at $1.3441, not far off the 2- month high of $1.3486 set on Friday.

The European Central Bank (ECB) will this week offer, for the second time, an unlimited volume of cheap three-year loans to European banks.

A Reuters poll of economists shows that banks will take 492 billion euros, close to the 489 billion borrowed in the first deal just before Christmas.

“Interpreting the outcome will be difficult though as a high number could be seen as good in the sense that banks may be raising cheap money to lend, or bad in the sense that they are dependent on the ECB for funding,” said Shane Oliver, head of investment strategy at AMP Capital Investors.

“Regardless of the outcome, the very existence of cheap ECB funds for 3 years has substantially reduced the risks around the European banking system,” he added.

That has bought European officials time to solve the debt crisis, analysts said. Progress was made earlier this month when finance ministers agreed to a second bailout for Greece.

But hurdles remained and one of them was highlighted by the weekend meeting of the Group of 20 leading economies. European members were told they must put up extra money to fight the debt crisis in return for more help from the rest of the world, putting pressure on Germany to drop its opposition to a bigger European bailout.

The resilience of the euro led the dollar to flounder at 2- month lows against a basket of major currencies. The dollar index .DXY was at 78.46, not far off Friday’s trough at 78.220.

Commodity currencies have gone nowhere against the US dollar since their rally fizzled earlier in the month, with some traders pointing to growing worries about global growth as oil prices soared.

The Australian dollar stood at $1.0685, a touch below its $1.0698 late in New York on Friday. Since hitting a six-month peak of $1.0845 on February 8, the Aussie has been drifting sideways.

Against the broadly weaker yen though, the Aussie hit 87.42, the highest since early July, a gain of 7.7 percent so far this month.

Markets ignored a leadership battle in Australia’s minority government. Prime Minister Julia Gillard soundly defeated a challenge from party rival Kevin Rudd in Monday’s leadership vote.

reuters

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