* Euro slips from 11-month high on profit-taking
* Euro fall to be short-lived as many to buy back on dips
* Dollar slips vs yen but strengthening trend intact
* Wednesday loan repayment to ECB, Fed meeting in focus
By Anooja Debnath
LONDON, Jan 29 The euro slipped for a second
straight day against the dollar on Tuesday, although it was not
far from recent 11-month highs with its overall strength intact
on growing confidence about a euro zone recovery.
Receding fears around the euro zone crisis have pushed
investors to opt for the euro, and such dips were good buying
opportunities, analysts said.
Profit taking and pull-back in the euro would be
short-lived, traders said, as it looked poised to extend gains
to $1.3500 in coming days. But before getting to that, it would
face strong resistance at the 2012 high of $1.34869.
The euro was down 0.2 percent on the day against the
dollar at $1.3435 having fallen from Friday's high of $1.3480,
which was the highest level since late February last year.
Traders reported bids from Asian sovereign investors at
"The trend in euro/dollar is still very much upwards, and I
think the market is desperate for a pullback to get a bit more
animated about a test of the topside," said Daragh Maher, FX
strategist at HSBC.
"There has been a substantial reduction in the tail risks
(surrounding the euro zone) and the euro has got momentum."
Maher said if the euro broke through $1.34869 and the
psychologically important level of $1.35, the next big target
would be the July 2011 low around $1.3840.
The euro has risen 1.8 percent against the dollar and over 4
percent against the yen since the start of 2013 on optimism that
the worst of the euro zone crisis is over.
It was boosted late last week on news Europe's banks would
repay some of their three-year loans from the European Central
Bank early, indicating parts of the region's banking system were
Analysts said the euro could likely get a slight lift from
this as it effectively means removing a large chunk of the 600
billion euros of 'excess liquidity' from the market.
Analysts added that the outcome of the U.S. Federal
Reserve's monetary policy meeting on Wednesday could help the
euro trend higher, although most do not expect any change in the
"If you get the Fed repeating its framework (of pumping in
stimulus) it will be dollar negative and if nothing goes wrong
in the euro zone, the euro could break above $1.35-$1.36," said
Chris Turner, head of FX strategy at ING.
The Fed's policy statement will be issued at the close of
its two-day meeting on Wednesday.
YEN RECOVERY FLEETING
The dollar dropped against the yen slipping further away
from a 2-1/2 year high hit a day earlier, but analysts said yen
weakness will resume as investors look to buy the dollar back at
Traders cited demand for 6-month yen puts - bets the
currency would fall - from a U.S. investor who bet dollar/yen
would rise to 97 yen in six months through option strikes.
The dollar slipped 0.4 percent to 90.45 yen, down
from Monday's high of 91.26 yen, its strongest level since June
2010. Traders reported options barriers at 91.50 and 92 yen.
Selling the yen has been mostly a one-way trade since
mid-November, based on expectations that Japanese Prime Minister
Shinzo Abe would push the Bank of Japan into more forceful
monetary easing to beat deflation.
"Should there to be any correction down to 88 yen, it would
be a good buy area. The overall trend (for dollar/yen) will be
higher, particularly in March-April when we start discussing the
new BOJ governor," ING's Turner said.
Present BOJ Governor Masaaki Shirakawa, whose term ends in
April, is seen likely to be replaced with a more dovish
governor, who could then bring forward any easing, giving
further impetus to yen bears.
The euro also slipped against the yen, dropping 0.6 percent
to 121.49 yen. It stayed below Monday's high of
122.91 yen, the euro's strongest level against the Japanese
currency since April 2011.