FOREX-Yen shorts trimmed; euro near 15-mth highs vs dlr

* Yen off highs as sell-off in risk fades

* Speculators trim carry positions but demand to buy dips

* Euro near 15-mth highs vs dlr, option barrier at $1.45

(Recasts, adds quote, updates prices)

By Neal Armstrong and Anirban Nag

LONDON, April 12 (Reuters) – The yen snapped a losing streak
on Tuesday as investors trimmed earlier bearish bets and booked
profits, although gains appeared likely to be shortlived with
demand for yen-funded carry trades set to pick up again.

The euro (EUR=: Quote, Profile, Research) reversed losses to trade 0.2 percent higher
on the day at $1.4458, with offers said to be around $1.4485 —
just below the currency’s 15-month high of $1.4489 — and option
barriers reported at $1.4500.

Against the yen, the euro was down only 0.2 percent at
121.94, recovering from a low of 120.16 yen (EURJPY=: Quote, Profile, Research) hit
earlier in the day. The Australian dollar also pared losses
against the yen (AUDJPY=R: Quote, Profile, Research) as did other growth-linked currencies
as investors bought at lower levels.

“The sell-off in risk looked overdone at its worst,” said
Adam Cole, Global Head of FX strategy at RBC Capital Markets,
noting that the Aussie/yen pair was down only around 40 points
from Monday’s U.S. close, having plunged 200 points in Asia to
around 86.80 yen.

The initial sell-off in risk was prompted by Japan’s Nuclear
Safety Agency raising the severity rating of the Fukushima
accident to level 7 — the highest classification and the same
as the world’s worst nuclear disaster at Chernobyl in 1986.
[ID:nL3E7FB2TZ]

The news led some speculators to book profits on carry
trades, where investments in riskier assets and higher-yielding
currencies such as the Australian dollar are funded by going
short on the low-yielding yen.

Short yen positions and key technical indicators in the
euro/yen and Aussie/yen pairs had been indicating the chances of
a temporary pullback after their recent rally. With this
correction, some analysts said, the trend for broad yen weakness
was likely to be on more solid ground.

“The broader trend for increased risk should remain as the
market focuses on leading indicators,” said Chris Walker,
currency strategist at UBS. “If U.S. sentiment continues to
improve and risk appetite is stable this will keep carry trades
going.”

Group of Seven (G7) intervention on March 18 to weaken the
Japanese currency has fuelled yen selling to fund carry
positions. Expectations the Bank of Japan will keep policy loose
to help the economy rebound from last month’s devastating
earthquake have also hit the yen.

The U.S. dollar was down 0.3 percent at 84.30 yen (JPY=: Quote, Profile, Research)
paring earlier losses after running into technical support at
its 200-day moving average just below 83.50. Japanese real-money
accounts were dollar/yen buyers, while offers were reported at
84.50.

STERLING FALLS, BANK OF CANADA AWAITED

The dollar index (.DXY : Quote, Profile, Research), which tracks the greenback against
a basket of major currencies, was down slightly at 74.971, near
a 16-month low of 74.838 hit on Friday.

Dovish comments from key U.S. Federal Reserve officials the
previous day indicated the Fed is not in any hurry to tighten
policy, likely limiting the greenback’s upside potential in the
near future. [ID:nN11296347]

Sterling fell to a five-month low versus the euro
(EURGBP=D4: Quote, Profile, Research) and a one-week trough of $1.6227 against the dollar
(GBP=D4: Quote, Profile, Research) after annual inflation came in at 4 percent versus 4.4
percent forecast. [ID:nAHLBFE7FK]

Expectations for a rate rise from the Bank of England were
pushed back to October. (BOEWATCH: Quote, Profile, Research) In contrast, markets are
closer to pricing in a further rise in the European Central
Bank’s main refinancing rate in June. (ECBWATCH: Quote, Profile, Research)

The euro was also helped by China’s pledge to carry on
buying Spanish debt and help fund a restructuring of the
country’s savings banks. [nLDE73B12SRM]

The Canadian dollar (CAD=D4: Quote, Profile, Research) was lower against the U.S.
dollar ahead of a rate decision by the Bank of Canada. It is
widely expected to keep rates on hold. [ID:nN07149592]

Societe Generale said in a note that Tuesday’s pullback in
risk had created an ideal opportunity to go long on the Canadian
dollar/yen trade (CADJPY=R: Quote, Profile, Research).

It said it had entered a long spot position with stop losses
at 85 yen and targeting 92 yen, up from around 87.90 now. The
bank expects the Canadian dollar to strengthen on the back of
continued investment expenditure and rising employment.
(Editing by Catherine Evans)

FOREX-Yen shorts trimmed; euro near 15-mth highs vs dlr