FOREX-Dollar settles after whipsaw move, franc near peak

* Dollar recovers from selloff as U.S. yields spike

* Moves exaggerated by very thin year-end conditions

* Swiss franc near record high vs dollar, euro

* Dlr/yen off 6-week low but looks vulnerable on chart

* Commodity currencies keep momentum vs dollar

By Hideyuki Sano

TOKYO, Dec 29 (BestGrowthStock) – The dollar stabilised on Wednesday
after a spike in U.S. Treasury yields helped it recover from a
sharp loss against the euro in a yo-yo session the previous day
marked by thin year-end flows.

The Swiss franc held near a record high against the euro and
the dollar as investors sought refuge from euro zone debt, while
the dollar threatened to break below a familiar range against the
yen, another currency that tends to gain from risk-aversion.

“The market is not driven by factors, but the thin conditions
mean there could be more volatile moves,” said a trader at a
Japanese bank.

The dollar index (Read more about the global trade. ), which tracks the greenback’s performance
against a basket of major currencies, was slightly easier on the
day at 80.29 (.DXY: ) (=USD: ), though it still held above Tuesday’s
low of 79.596.

“A lot of positioning has been flushed out after last night,
so I don’t expect much action today. There’s nothing around in
the order books at the moment,” said a trader at a U.S.
investment bank in Sydney.

The turnaround came as U.S. Treasury yields rose across the
board, with the benchmark 10-year issue gaining a hefty 16 basis
points to reach just shy of 3.50 percent as dealers sought a
bigger concession to take Wednesday’s sales of seven-year
government debt.

The higher yields helped make the dollar more attractive for
investors chasing better returns, though some analysts cautioned
that the rise in bond yields, triggered after a weak five-year
bond auction, may not bode well for the dollar.

“If U.S. yields are rising because of worries over U.S.
fiscal conditions, or rising inflation expectations, that’s
probably negative for the dollar,” said Tohru Sasaki, chief FX
strategist at JPMorgan Chase Bank.

The euro stood at $1.3130 (EUR=: ) after a whipsaw move on
Tuesday that took it to $1.3275, its best level since Dec. 17.

Although it slipped from that high, it held above its 200-day
moving average, now at $1.3086, which has served as a strong
support for more than a week.

SWISS FRANC SHINES

The euro remained near a record low against Swiss franc, a
safe-haven currency that has attracted funds escaping euro zone
debts on worries that some euro zone countries could face severe
financing problems.

The euro fetched 1.2495 francs (EURCHF=R: ), barely above a
record low of 1.2440 francs set a week ago.

The franc also held not far from a record high against the
dollar. The U.S. currency traded at $0.9520 (CHF=: ) after hitting
an all-time low around $0.9437 on Tuesday.

The yen, which tends to be favoured when investors grow
risk-averse, was also supported after having hit a 6-week high
against the dollar and a near two-year high against the British
pound on Tuesday.

On Wednesday, the dollar slipped 0.2 percent to 82.20 yen
(JPY=: ), off Tuesday’s low of 81.81 yen. But in a major bearish
sign it dropped below the bottom of the daily ichimoku chart at
82.39.

JPMorgan’s Sasaki said moves in the dollar/yen tend to gather
momentum towards new year from Christmas.

In the past three years, the rate has moved 3.5 percent on
average in the first three days of year, and 2.0 percent in the
last three trading days, compared to 0.7 percent in the three
days around the Christmas holidays, he said.

If the pair falls in the coming days, and the size of the
fall matches the average of the past three years, that would see
the dollar well below its postwar low of 79.75 yen by next week.

Meanwhile commodity currencies also maintained momentum
thanks to a rally in commodity prices.

The Aussie stayed within sight of re-testing a 28-year peak
of $1.0182 set in November, standing at $1.0100 (AUD=D4: ). It rose
as high as $1.0153 on Tuesday.

China raised interest rates on Saturday for the second time
in just over two months to fight stubbornly high inflation, and
analysts expect more to come in 2011. [ID:nTOE6BO010]

Although that helped knock down Shanghai shares (.SSEC: ) to a
three-month low, commodities markets have so far taken the
Chinese rate hike in their stride.

Oil hit a two-year high of $91.88 this week while copper has
been setting a fresh record every day.

Some analysts warn that when markets get back to normal from
holiday mode, various correlations including that between Chinese
shares and the Australian dollar may return to normal too,
possibly weighing on the Aussie.

Traders also caution that depending on how the Aussie
performs a double-top could be in the making.

“We’ve seen some corporate selling of the Aussie above $1.01.
It will probably be a bit heavy on any rally but I really don’t
see much happening until liquidity picks up in January,” a trader
in Sydney said.

The Canadian dollar also stayed near its April high, a break
of which would push it to a level not seen for 2