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

Tue Jan 29, 2013 3:12am IST

* 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 in subdued trading as investors
locked in profits after the greenback's recent rally, although
its uptrend is likely to hold given expectations of further
monetary easing in Japan.
    The euro 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 toward 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 expected Japanese Prime Minister Shinzo Abe would
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 Japan is triggering a currency war.
    In late afternoon trading, the dollar slipped 0.1 percent to
90.78 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 said the Japanese government may try to moderate its view
on the weak yen given complaints by foreign politicians such as
German Chancellor Angela Merkel.
    The dollar briefly recovered against the yen after data
showed U.S. durable goods orders unexpectedly rose in December.
But the momentum faded after data on U.S. pending home sales
disappointed. 
    The euro fell 0.2 percent to 122.10 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 has advanced for six consecutive months 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 region,
especially from Germany, the bloc's largest economy. The euro
has also benefited from news about euro zone bank repayments to
the European Central Bank, suggesting 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
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 the highest level 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 toward the end of last week.
    Not everyone shared that enthusiasm.
    "We are not getting euphoric on the euro," said Jens
Nordvig, chief currency strategist at Nomura Securities in New
York. "The growth trend is too weak to support a sustained
rally, in our view. Sooner or later, the risk premium
compression on the euro will have run its course."
    Traders are also awaiting the outcome of the Federal
Reserve's monetary policy meeting this week, although most do
not expect any change in the U.S. central bank's dovish stance.
The Fed's policy statement will be issued at the close of its
two-day meeting on Wednesday. 
    The first estimate of fourth-quarter U.S. economic growth
and January payrolls readings are also due this week.
    "The expectation is that this week's U.S. data will offer
more evidence of a steady but slowly healing recovery," said Joe
Manimbo, senior market analyst at Western Union Business
Solutions in Washington.
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