Reuters: US Dollar Report: FOREX-Yen takes breather from rally, euro cuts losses

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FOREX-Yen takes breather from rally, euro cuts losses Mar 23rd 2012, 09:18 Fri Mar 23, 2012 5:18am EDT * Importer selling weighs on yen across the board * Worries about China, Europe weigh on risk sentiment * Euro recoups some losses, Aussie headed for bad week By Anirban Nag LONDON, March 23 (Reuters) - The euro and growth-linked currencies like the Australian dollar recouped some of their steep losses against the yen on Friday, but both looked vulnerable on concerns about the euro zone slowdown and the pace of the global recovery. Worries about faltering global growth hit have stocks and commodities after manufacturing shrank for a fifth month in China while factory activity in Germany and France, Europe's two biggest economies, suffered big and unexpected falls. That bolstered the safe-haven yen and sent growth currencies and the euro lower on Thursday. But on Friday the Japanese unit's underlying weakness was reinforced on selling by Japan importers, whose purchases of fossil fuels have surged as most nuclear reactors in the country were taken offline after the Fukushima disaster last year. The yen is likely to benefit from repatriation flows ahead of the Japanese fiscal year-end on March 31, but any gains could prove fleeting given how determined the Bank of Japan is to keep monetary policy ultra-loose. "While we could see some short-term bounce going into the fiscal year-end, the broad trend for the yen is lower," said Simon Derrick, head of currency research, at Bank of New York Mellon. "Given how successful the Bank of Japan has been in pushing the yen lower, they will look to pump additional funds and that will keep the yen weaker." The dollar rose 0.2 percent against the yen to 82.65, having lost more than 1 percent on Thursday. The euro was up 0.7 percent at 109.698 yen, having shed 1.2 percent on Thursday. The greenback has gained 7.5 percent against the yen since the start of this year, while the euro has jumped more than 10 percent, with gains picking after the Bank of Japan surprisingly eased policy by announcing more quantitative easing in February. They paused their rally against the yen this week as investors booked profits and data on Thursday showed Japan posted a surprise trade surplus. "Importers who were late into the dollar rally have been very active since late New York trading, both in dollar/yen and in euro/yen," said Teppei Ino, currency strategist at Bank of Tokyo-Mitsubishi UFJ in Tokyo. CAUTIOUS ABOUT RISK The Australian dollar also recouped some of its losses against the yen, but analysts said investors are likely to be cautious about perceived riskier currencies amid growing signs of a global slowdown. Westpac strategist Sean Callow recommended a bearish Aussie dollar position against the yen through a double-knock-out put option at a strike price of 86 yen with barriers at 77 on the downside and 88 yen on the upside. He saw greater downside to the Aussie/yen currency pair over the next month after its 12 percent surge from mid-January to its recent highs above 88 yen. The Aussie was last trading at 86.24 yen, up 0.6 percent on the day. While some softness in economic activity in Europe and China had been expected, investors were unnerved by the drop in new orders in both regions, which suggested an unexpectedly severe downturn. "The rally in risk assets has been extraordinary this year, so in a way it's positive that weak data is giving traders an opportunity to take profit. If the recent falls end as a mere correction, the subsequent rally would be stronger thanks to this pullback," Bank of Tokyo Mitsubishi's Ino said. The euro climbed from Thursday's low of $1.3133, rising to a three-week high of $1.3293, up 0.6 percent on the day. But some analysts said the single currency could still fall against the dollar, partly due to the recovery in the U.S. economy. The recent flow of encouraging U.S. data has driven U.S. Treasury yields sharply higher, making the dollar less attractive as a funding currency for carry trades. Growth-linked currencies nursed heavy losses against the dollar with the Australian dollar at $1.0430, having dropped to a two-month low of $1.0336 on Thursday. It is on track to end the week down almost 1.5 percent. Link this Share this Digg this Email Reprints

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