FOREX-Dollar slides from 2-1/2-year peak vs yen; euro slips

Tue Jan 29, 2013 1:37am IST

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* Euro pauses after reaching 11-month high
    * Yen firm but weakness to persist on prospects of easing
    * Investors look ahead to Fed meeting, U.S. GDP, jobs data


    By Gertrude Chavez-Dreyfuss
    NEW YORK, Jan 28 (Reuters) - The dollar fell from 2-1/2-year
peaks against the yen on Monday as investors consolidated their
positions and locked in profits on the greenback's recent rally
even as its uptrend is likely to hold given expectations of
further monetary easing in Japan.
    The euro, meanwhile, slid from an 11-month high against the
dollar set on Friday, with traders reporting option barriers
starting from $1.3480. But analysts said the common currency
looked poised for further gains, which could lift it towards the
psychologically important $1.35 level, the highest since
December 2011.
    Selling the yen has been a one-way trade since mid-November
as investors believed Japanese Prime Minister Shinzo Abe will
push the Bank of Japan into more forceful monetary easing to
beat deflation.
    Increasing rhetoric from Japanese authorities that they are
open to the dollar rising to the 100 yen level has helped weaken
the currency further, raising eyebrows abroad and sparking talk
that it is triggering a currency war.
    In early afternoon trading, the dollar slipped 0.2 percent
to 90.70 yen. It had earlier risen as high as 91.25 yen,
hitting a 2-1/2 year high for a third consecutive session.
    "I expect there would be some consolidation around the
current level until there is a better sense of the directional
movement," said Al Manbeian, managing partner at corporate FX
broker GPS Capital Markets in Salt Lake City. "But the trend is
for continued yen weakness."
    He added that the Japanese government may try to moderate
its view on the weak yen given the fact that foreign politicians
such as German Chancellor Angela Merkel have complained about
it.
    The dollar had briefly recovered against the yen after data
showed U.S. durable goods orders rose more than expected in
December. But the momentum faded after the release of
disappointing data on U.S. pending home sales. 
    The euro fell 0.2 percent to 122 yen, after
climbing to a 21-month high of 122.89 yen on Reuters data.
    Against the dollar, the euro was down 0.1 percent at
$1.3451, slipping from an 11-month high of $1.3479 set on
Friday. The euro, however, has advanced for a sixth consecutive
month versus the dollar for gains of more than 9 percent.
    Analysts said the outlook for the euro zone improved with
the generally positive economic news out of the euro zone,
especially from Germany, the largest country in the region. The
euro has also benefited from news of euro zone bank repayments
to the European Central Bank, suggesting that funding conditions
have improved.
    "The euro has been in a powerful uptrend on the healing
optimism for both Europe and the global economy," said Jack
Crooks, president and founder of FX investment advisory firm
Black Swan Capital in Palm City, Florida.     
    Ahead of the $1.35 level, major resistance for the
euro/dollar includes its 2012 high of $1.3486 and the 50 percent
retracement from the high in May 2011 to the low in July 2012 at
$1.3492, traders said.
    Data on Friday showed speculators had increased their net
long euro positions, while bets for further weakness in the
dollar hit its highest since early October. 
    In the options market, traders reported demand for euro
calls, which are bets on more gains. The one-month risk
reversals traded at 0.1 vols in favor of euro
calls, having flipped from puts towards the end of last week.
    Traders are also looking out for this week's monetary policy
decision from the Federal Reserve, although most do not expect
any change in the U.S. central bank's dovish stance. The Fed
meets on Tuesday and Wednesday. 
    The first estimate of fourth-quarter U.S. economic growth
and January payrolls readings are also due this week.
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