FOREX-Euro stung by Juncker's comment, yen holds firm

Wed Jan 16, 2013 4:36am IST

* Eurogroup president Juncker says euro is 'dangerously high'

* Euro pulls back from multi-month peaks vs USD, yen

* Yen enjoys rebound after comments about its 'excessive weakness'

By Ian Chua

SYDNEY, Jan 16 (Reuters) - The euro had its winning streak clipped after a top European official complained about its recent run higher, while the yen held firm on Wednesday following a warning about its excessive weakness by a Japanese politician.

The single currency traded at $1.3297, pulling back from an 11-month high of $1.3404 set on Monday after the chairman of the euro zone finance ministers said the euro was "dangerously high".

Against the yen, the euro stood at 118.09, well off a 20-month peak of 120.13. The common currency also lost ground against commodity currencies like the Australian dollar .

Traders said Juncker's comments simply gave investors an excuse to cash in on recent gains and did not necessarily represent a reversal in its uptrend.

Still, some analysts said they wouldn't be surprised to see the dip morph into a bigger slide.

"The pullback from the 2013 high looks poised to turn into a larger correction, and we may see the euro-dollar fall back towards the $1.3100 region as heightening growth concerns fuels speculation for additional monetary support," said David Song, analyst at DailyFX.

The euro had rallied some 3 percent against the greenback in the past few sessions after the European Central Bank (ECB) sounded more upbeat about the region's recovery.

In a similar reaction that prompted a reversal in the yen, investors unwound bearish positions in the Japanese currency after Japan's Economics Minister warned that excessive yen weakness could boost import prices, hurting people's livelihood.

That helped send the dollar skidding as far as 88.28 yen from a 2-1/2 year high of 89.67 set on Monday. It last traded at 88.80.

Investors had turned negative on the yen in the past few weeks on expectation the Bank of Japan will be forced to take bold action to reflate a sluggish economy. New Prime Minister Shinzo Abe has been very vocal about getting the BOJ to tackle deflation once and for all.

With most of the attention focused on the yen as well as the euro, the dollar shuffled sideways against other currencies. The Australian dollar, for instance, was little changed at $1.0561 , still within striking distance of a 4-month peak near $1.0600 set last week.

Barring any more comments on currencies from politicians, the market is likely to once again take its cues from economic news. In Asia, Japan's machinery orders for November are due followed by euro zone and U.S. inflation data.

Banking

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