Reuters: US Dollar Report: FOREX-Yen shade weaker after rally, but risks linger

Reuters: US Dollar Report Reuters.com is your source for breaking news, business, financial and investing news, including personal finance and stocks. Reuters is the leading global provider of news, financial information and technology solutions to the world's media, financial institutions, businesses and individuals. // via fulltextrssfeed.com

FOREX-Yen shade weaker after rally, but risks linger Mar 23rd 2012, 04:38 Fri Mar 23, 2012 12:38am EDT * Importer yen selling weighs on yen across the board * Worries about China, Europe weigh on risk sentiment * Growth-linked currencies like the Aussie nurse losses * Euro resilient, but more downside vs USD seen By Antoni Slodkowski TOKYO, March 23 (Reuters) - The yen softened on Friday after Tokyo importers took advantage of its broad rally the day before, while risk currencies like the Australian dollar were poised to end the week sharply lower on fresh concerns about the health of the global economy. 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, data showed on Thursday, bolstering the yen and sending growth currencies down. But on Friday the Japanese unit's underlying weakness was reinforced by 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. "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. The yen dropped 0.3 percent to 82.75, slowly inching back towards this year's low of 84.19 hit earlier in March. Its rise on Thursday stalled ahead of the resistance at the 23.6 percent retracement of its recent fall at 82.28. The dollar's staggering rally on the yen lost impetus late in the week as investors booked profits on the greenback and as Japan posted a surprise trade surplus on Thursday. Other currencies also recouped some of their overnight losses on the yen despite Asian stock markets turning red, suggesting investors are awaiting more definite signs of a global slowdown before shunning riskier assets more aggressively. The alarm lights are flashing as Spanish bond yields spiked above 5.5 percent for the first time since early January, with investors continuing to worry after Spain proposed to cut the budget deficit, which exceeded targets in 2011, by less than agreed with the EU for this year. While a slowdown in Europe and China has been expected, investors were unnerved by the drop in new orders in both regions, which fuelled concerns that an unexpectedly severe downturn could snuff out the global recovery. "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 profits. If the recent falls end as a mere correction, the subsequent rally would be stronger thanks to this pullback," Ino said. Reflecting this view, the euro stayed surprisingly resilient against the greenback, bouncing off a low of $1.3133 to $1.3203 . But some analysts expect 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. Traders said yields are prone to pullbacks like the one seen on Thursday, but should rise further if the U.S. recovery strengthened, providing support for the greenback in the months to come. "We see scope for EURUSD to trade lower in the coming weeks, based on the risk that Treasury yields will overshoot to the upside relative to what we regard as realistic Fed policy expectations," BNP Paribas analysts wrote in a client note. "We also see the potential for the reemergence of some euro zone stress as we head into April and as the French and Greek elections draw near. We are targeting 1.28 in the coming weeks." Growth-linked currencies nursed heavy losses against the dollar with the Australian dollar hovering at lows not seen since mid-January at $1.0396. It is on track to end the week down almost 2 percent. After a rush of manufacturing surveys on Thursday, the focus was again back on Europe, with Italian retail sales and French business climate due later in the day, followed by U.S. new home sales to round off the week. Link this Share this Digg this Email Reprints

You are receiving this email because you subscribed to this feed at blogtrottr.com. If you no longer wish to receive these emails, you can unsubscribe from this feed, or manage all your subscriptions