FOREX-Yen extends fall, euro at 14-mth high vs dlr

* Yen hits 11-mth lows vs euro, 6-mth lows vs dollar

* Carry trade revival hurts

* Euro climbs to 14-mth high vs dollar

(Recasts, changes dateline; pvs SYDNEY/SINGAPORE)

By Anirban Nag

LONDON, April 6 (Reuters) – The yen extended losses on
Wednesday, hitting a 11-month low against the euro and a
six-month low against the dollar with more weakness in store as
investors like macro hedge funds add to bearish bets.

The Japanese currency was threatening to breach key
long-term support levels, having already fallen to a 2-1/2 year
low against the Australian dollar, with traders citing steady
buying by Japanese real money accounts.

The yen has slid over since the first G7 intervention in a
decade last month, stirring talk about the revival of carry
trades, a strategy of selling low-yielding currencies to fund
investment in currencies with higher interest rates.

Market players say the broader trend points to a
continuation of yen weakness, given growing expectations that
the Bank of Japan will lag other central banks like the European
Central Bank and the Federal Reserve in raising interest rates.

“The yen is taking a lead as the global carry trade makes a
return with the Bank of Japan likely to ease policy while the
other central banks seek to tighten it,” said Lena Komileva,
head of G-10 currency strategy at Brown Brothers Harriman.

“Global risk sentiment is picking up and there is abundant
liquidity which is even isolating the euro from its peripheral
debt problems.”

The euro hit an 11-month peak of 121.97 yen (EURJPY=R: Quote, Profile, Research), up
nearly 1 percent, with stop-loss buying earlier in the session
adding to its rise. The high-yielding Australian dollar
(AUDJPY=R: Quote, Profile, Research), surged to 88.68 yen, its highest since September
2008, with 90 yen seen as the next possible target.

The euro rose to a 14-month high of $1.4292 (EUR=: Quote, Profile, Research), on
buying by Asian central banks, traders said. These central banks
have been intervening to cap a rise in their currencies in
recent sessions and recycling those proceeds into the euro.

The dollar was up 0.5 percent to 85.30 yen. The dollar
scaled a six-month peak of 85.53 yen (JPY=: Quote, Profile, Research), having surged 12
percent from its post-World War Two record low of 76.25 yen hit
in March, days after Japan’s northeast was devastated by a
massive earthquake and tsunami.

For a graphic on dollar/yen resistance levels, click on


Some market players say the dollar’s rise above its 200-day
moving average last week suggests that a long-term uptrend in
the yen is about to shift, drawing investors who may have missed
some yen weakness in late March to jump on the move.

The dollar is heading toward more chart resistance against
the yen. Trendline resistance drawn off its June 2007 peak
around 124 yen now lies roughly around 85.65 yen. Its 55-week
moving average comes in near 85.80 yen, followed by the dollar’s
mid-September peak at 85.94 yen.

The latter level is key because it was a high in dollar/yen
reached after Japan intervened in currency markets for the first
time in six years in September 2010.

“If you look at longer term charts, it looks like we may be
at a turning point,” said Tsutomu Soma, senior manager at Okasan
Securities in Tokyo. “If the dollar breaks above 85.94 yen, we
could see a test of levels around 90 yen,” he added.

Indeed, market players said there has been active trade the
past two days in dollar/yen options with a strike price of 90
yen that mature in August.

The euro is also right near some longer term resistance
levels. On weekly Ichimoku charts, a form of Japanese technical
analysis that is widely used among market players, the top of
the cloud comes in right around 122 yen while the 100-week
moving average lies near 121.76 yen.

The Bank of Japan meets today and Thursday and should at
least signal a willingness to ease further, if needed

In contrast, the European Central Bank is certain to raise
rates for the first time since July 2008 on Thursday.

“The euro has priced in a rate hike by the ECB,” said Brown
Bothers’ Komileva. “But what is driving the euro/dollar higher
is the contrasting nature of communication between the Fed and
the ECB.”

Fed minutes released on Tuesday did not spring any major
surprises and there was nothing to suggest an early end to its
“QE2” programme of bond-buying.

In Europe’s debt crisis, Portugal will test appetite for its
short-term debt at a sale on Wednesday as a series of credit
ratings cuts underlined banking sector concerns that have led
local lenders to threaten to stop buying government debt.
(additional reporting by Ian Chua in Sydney and Masayuki Kitano
in Singapore)
(Editing by Patrick Graham)

FOREX-Yen extends fall, euro at 14-mth high vs dlr