FOREX-Euro slips from multi-month highs; hikes priced in

* Euro hits 5-mth high of $1.4269, slips back to $1.4194

* Single currency eases from 11-mth high of 120.07 yen

* Diverging rate expectations may be fully priced

* Speculative long positioning leaves euro vulnerable

(Adds detail, updates prices)

By Neal Armstrong

LONDON, April 4 (Reuters) – The euro slipped back from
11-month highs against the yen on Monday and a five-month peak
against the dollar, as analysts said expectations for higher
euro zone interest rates were becoming priced in.

The Bank of Japan is likely to downgrade its economic
assessment on Wednesday, while comments from a Federal Reserve
official on Friday highlighted uncertainty over the need to
tighten monetary policy in the United States.

Markets expect the European Central Bank to react to rising
inflationary pressures in the euro zone by raising interest
rates from a record low on Thursday, with a further two 25 basis
point hikes factored in by year-end. (ECBWATCH: Quote, Profile, Research)

The euro (EUR=: Quote, Profile, Research) rose to $1.4269 against the dollar in Asian
trade but stalled ahead of its November 2010 high, seen as
resistance around $1.4281. It slipped back to $1.4194 in Europe,
down around 0.2 percent for the day.

“I think the euro is close to putting in a top now as the
monetary policy divergence story is almost fully priced,” said
Lee Hardman, currency strategist at BTM-UFJ.

Technical analysts also highlighted trendline resistance
drawn from the euro’s record high struck in July 2008 coming in
around $1.4300.

“The move wider in EUR/USD rate differentials seems to have
lost some of its impetus in the run up to the ECB rate decision
indicating that some euro positives are already priced in by the
market.” said Valentin Marinov, currency analyst at CitiFX in a
note.

Latest speculative positioning data suggests the euro could
be ripe for a pull-back. Longs in the single currency continued
to bulk up, rising to 56,630 from the previous week’s 48,353.
[IMM/FX]

The euro briefly popped above 120 yen (EURJPY=R: Quote, Profile, Research) for the
first time since May 2010 but retreated to 119.40, down 0.2
percent from late U.S. trade on Friday.

“The yen is likely to continue to gradually weaken but we
see more upside for dollar/yen rather than euro/yen. We think
the market is underestimating U.S. rate hike expectations,” said
Hardman at BTM-UFJ.

One of the Federal Reserve’s most powerful policymakers on
Friday went 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]

The dollar was slightly firmer versus a currency basket on
Monday, trading up 0.1 percent at 75.929 (.DXY: Quote, Profile, Research).
Better-than-expected U.S. employment data on Friday, hinting at
a stronger economic recovery and the possibility for higher U.S.
interest rates, leant the greenback some support.

AUSSIE OFF HIGHS

The dollar was flat around 83.95 yen (JPY=: Quote, Profile, Research). It had hit a
six-month high of 84.735 yen on Friday on trading platform EBS,
stalling ahead of an option barrier at 84.75. Traders reported
good interest to sell dollars into the 85.00 area.

The dollar was up around 11 percent from its post-World War
Two record low of 76.25 yen struck in March.

It rose above its 200-day moving average at 83.57 last week,
in a sign that its downtrend against the yen may have run its
course, while a potential upside target lies at its
mid-September high of 85.94 yen.

The yen hovered near recent lows on the crosses,
particularly against higher yielding currencies like the
Australian dollar.

The Aussie reached highs not seen since early May 2010 at
87.69 yen (AUDJPY=R: Quote, Profile, Research), and was last at 87.12. It has gained
roughly 16 percent from a low hit on March 17.

The Aussie hit a fresh 29-year high against the greenback in
the Asian session of $1.0422 (AUD=D4: Quote, Profile, Research). It slipped back to trade
at 1.0370 in European dealing, down 0.2 percent on the day.

(Editing by Toby Chopra)

FOREX-Euro slips from multi-month highs; hikes priced in