Reuters: US Dollar Report: FOREX-Euro up on short-covering; yen on defensive

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FOREX-Euro up on short-covering; yen on defensive Mar 21st 2012, 06:57 Wed Mar 21, 2012 2:57am EDT * Euro hits 2-wk high vs dollar on short-covering * Yen hits 5-mth low vs euro, 9-mth low on sterling * Dollar/yen may see more upside-trader By Masayuki Kitano SINGAPORE, March 21 (Reuters) - The euro edged higher against the dollar on Wednesday on short-covering, while the yen was mostly weaker with traders eager to add to bearish bets against the Japanese currency. The yen dipped to a fresh five-month low versus the euro and hit a nine-month trough against sterling, staying on the defensive in the wake of the Bank of Japan's monetary easing last month. The euro rose 0.4 percent to $1.3273, after climbing to $1.32835 at one point, its highest level since March 8. "The market is a little bit short euros, so that's what's driving it," said Jesper Bargmann, head of G11 spot FX in Asia for RBS in Singapore. The euro's rise may stall at around $1.3280 to $1.3300 in the near term, Bargmann said, adding that the single currency could squeeze a bit higher if $1.3300 is breached. "But I wouldn't suddenly become bullish for the euro. I think it's just driven by short-term positioning," he added. The euro's latest rise came in the wake of its drop to a one-month low near $1.3004 last week, when the dollar rose on fading expectations of further monetary easing by the U.S. Federal Reserve after a modest brightening of its economic outlook. One factor supporting the euro is a narrowing in U.S.-German two-year yield spreads, said Christopher Gothard, head of FX for Brown Brothers Harriman in Hong Kong. The U.S.-German two-year yield spread is now at roughly 5 basis points, down from around 17 basis points at one point last week . The euro's upside, however, may be limited, Gothard said. "If U.S. data remains solid U.S. yields may continue to track higher, while Europe faces some risks to this euro strength from the Italian labour reform talks and continued poor economic news from Spain," he added. While Greece this week received its first batch of bailout funds to ride out the huge debt repayments falling due this month, Italy is set for a collision course with the country's biggest trade union after talks on reform to an employment protection law failed to produce a deal. YEN DIPS BROADLY The single currency touched a five-month peak of 111.17 yen on trading platform EBS at one point, nearing resistance at its Oct. 31 high around 111.57 yen. The euro last changed hands at 111.06 yen, up 0.3 percent from late U.S. trade on Tuesday. The yen also sagged against sterling, with the pound rising to 133.02 yen at one point, its highest level against the Japanese currency since June 2011. The dollar dipped 0.1 percent against the yen at 83.68 yen , not too far from an 11-month high of 84.187 yen hit last week. Earlier, Japanese exporters were spotted selling the dollar ahead of the end of their financial year on March 31. The greenback's drop was limited however, with sentiment toward the yen still weak after its sharp drop over the past month. "We maintain a view of being long USD/JPY on dips as well as CAD/JPY and MXN/JPY. The market continues to want to sell JPY, keeping USD/JPY well bid. Some of it has to do with rising yields in the US," said Sebastien Galy, strategist at Societe Generale. Bargmann at RBS said the dollar could rise towards 85.00 yen initially if it clearly breaks above the 84.00 to 84.20 yen area and see even more gains over the next few months. "There's very little pain in the trade at the moment. I think some people have it on, but not in the size that they want, so I think there are still buyers on the dips," Bargmann said. Link this Share this Digg this Email Reprints

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