FOREX-Euro hits 11-mth high vs yen, seen firm before ECB

* Euro hits 11-mth high above 120 yen

* Dudley’s dovish comments take shine off dollar

* Aussie rises to fresh 29-year high at $1.0422

By Ian Chua and Masayuki Kitano

SYDNEY/SINGAPORE, April 4 (Reuters) – The euro hit fresh
11-month highs against a broadly weaker yen on Monday and
touched a five-month peak against the dollar with markets all
but certain the European Central Bank will raise interest rates
later this week.

In contrast, the Bank of Japan is likely to downgrade its
economic assessment at its meeting on Wednesday and may consider
finding more ways to help the economy recover from last month’s
massive earthquake and devastating tsunami.

This is likely to weigh on the Japanese currency, which is
already under pressure following a rare coordinated G7
intervention to temper runaway yen gains on March 18.

The euro briefly popped above 120 yen for the
first time since May 2010 and last traded at 119.65 yen, up 0.1
percent from late U.S. trade on Friday.

“Coming into the ECB meeting this week, we have to
anticipate further euro gains,” said Todd Elmer, currency
strategist at Citi in Singapore.

The single currency hit a five-month high against the dollar
of $1.4269 on trading platform EBS earlier on Monday, having
gained a lift from some stop-loss buying, traders said, adding
that more stops were seen towards $1.4300.

The euro later trimmed its gains to stand at $1.4225 ,
down 0.1 percent from late U.S. trade on Friday.

The euro’s earlier rise brought it close to resistance at
its November peak of $1.4283, a level that also roughly
coincides with trendline resistance drawn from the euro’s record
high struck in July 2008.

A clear breach of that resistance could open the way for the
euro to climb further, with one possible target seen at $1.4374,
the 76.4 percent retracement of the euro’s slide between
November 2009 to June 2010.

“I don’t think investors are overly long at this stage. You
could see some people forced to chase the move. That has the
potential to fuel further gains,” said Elmer at Citi in
Singapore.

YEN DIPS DOLLAR, EURO

The dollar edged up 0.1 percent to 84.11 yen . It had
hit a six-month high of 84.735 yen on Friday on trading platform
EBS, up 11 percent from its post-World War Two record low of
76.25 yen struck in March.

The dollar rose above its 200-day moving average against the
yen last week, in a sign that its downtrend against the yen may
be drawing to a close, and one potential upside target lies at
its mid-September high of 85.94 yen.

“However, we think the further rise of USD will be limited
or even reversed as recent market expectation over the early end
of U.S. QE2 and the start of rate hiking within this year looks
overdone,” analysts at Barclays Capital wrote in a report.

Indeed, one of the Federal Reserve’s most powerful
policymakers on Friday pushed back against an increasingly
hawkish tone from some other Fed officials worried about
inflation, saying he saw no need for the central bank to reverse
course.

William Dudley, president of the New York Federal Reserve
Bank, said the Fed was “still very far away” from achieving its
mandate of maximum sustainable employment and price stability,
even though the economy is on a firmer footing. [ID:nN01154414]

“He did not disappoint, other than those hoping that he
would change his tune, and those scrambling on the USD
bandwagon,” said David Watt, strategist at RBC.

While this means further gains in dollar/yen may be
difficult, weakness in the yen will most likely continue to be
expressed on the crosses, particularly against higher yielding
currencies like the Australian dollar, market players say.

The Australian dollar has reached highs not seen since early
May 2010 at 87.69 yen earlier on Monday, and was last
at 87.35 yen, down 0.1 percent from late U.S. trade on Friday.
It has gained roughly 16 percent from a low hit on March 17.

The Aussie also hit a fresh 29-year high against the
greenback, reaching $1.0422 earlier on Monday after
breaching a barrier at $1.04, which triggered stop-loss buying.

(Additional reporting by Reuters FX analyst Rick Lloyd in
Singapore)

FOREX-Euro hits 11-mth high vs yen, seen firm before ECB