Reuters: US Dollar Report: FOREX-Dollar rallies vs yen but vulnerable in short term

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FOREX-Dollar rallies vs yen but vulnerable in short term Jun 4th 2013, 15:42 Tue Jun 4, 2013 11:42am EDT * Dollar recovers, moves back to 100 yen * Japan to urge public pension funds to boost overseas holdings * Friday's U.S. jobs report key to dollar positioning By Gertrude Chavez-Dreyfuss NEW YORK, June 4 (Reuters) - The dollar recovered against the yen on Tuesday as investors capitalized on the previous day's sell-off to buy back the greenback at lower levels, while a rally in Japanese stocks spurred risk appetite and curbed the need to hold the yen for safety. Further support for the dollar versus the yen, some analysts said, came from a Reuters story citing people with knowledge of the situation as saying the Japanese government would urge public pension funds controlling a pool of over $2 trillion to boost investments in equities and overseas assets. The dollar was up 0.6 percent at 100.12 yen, with traders citing option expiries at 100 yen that were likely to keep the pair pinned around that level. It had fallen to a four-week low of 98.86 yen on Monday after a survey showed U.S. factory activity fell in May to its lowest since June 2009. The Nikkei index also rebounded from early losses to close 2 percent higher, led by a 6 percent gain in financials. Japanese government bonds, meanwhile, sold off and the 10-year yield rose 6 basis points to around 0.88 percent. "There was a squeeze on long dollar positions, but we know that wasn't going to last because the long-term bullish outlook on the dollar is well entrenched," said Vassili Serebriakov, currency strategist at BNP Paribas in New York. On the short-term technical charts, however, the signals suggested the dollar's rally against the yen was temporary. Camilla Sutton, chief currency strategist at ScotiaBank in Toronto, said the 50-day moving average around 99.12 yen is providing support and a close below this level would accelerate selling. But a close above Monday's opening price of 100.57 yen would remove some of the downside pressure, she added. The dollar index, a measure of the greenback's value against six major currencies, also recovered to trade 0.2 percent higher at 82.815. A U.S. manufacturing survey on Monday dimmed prospects of the Federal Reserve scaling back monetary easing soon, even though two Fed policymakers said on Monday the U.S. central bank could taper its stimulus in the coming months if data improved. The report from the Institute for Supply Management had triggered a sell-off in the dollar. With the Fed pledging to maintain stimulus until the labor market improves, U.S. jobs numbers due on Friday will be under intense scrutiny. The jobless rate is forecast to remain steady at 7.5 percent in May with the economy expected to add 170,000 jobs compared with 165,000 in April. A disappointing number could see long dollar bets being cut while better-than-expected data would give the U.S. currency a boost. "The greenback experienced a steep slide yesterday after disappointing U.S. ISM numbers but stocks did not collapse and this resilience left investors with the hope that the rest of this week's data including non-manufacturing ISM, Beige Book report and nonfarm payrolls could still show strength in the U.S. economy," said Kathy Lien, managing director at BK Asset Management in New York. The euro was flat at $1.3074, off a peak of $1.3108 reached on Monday, its highest since May 9. Euro zone producer prices fell further in April, marking the biggest month-on-month decrease in nearly four years and keeping alive chances of more interest rate cuts by the European Central Bank. The week's big euro focus will be the ECB's monthly meeting on Thursday at which officials are expected to hold interest rates steady. But a post-meeting press conference by ECB president Mario Draghi will come under scrutiny for clues on the prospects of a rate cut. The Australian dollar, meanwhile, was down more than 1 percent at U$0.9638 after the Reserve Bank of Australia held rates at 2.75 percent and governor Glenn Stevens said easing was still on the table. Link this Share this Digg this Email Reprints

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