FOREX-Yen struggles near lows, euro at 14-mth high vs dlr

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

* Carry trade revival hurts, BOJ seen keeping policy loose

* Euro climbs to 14-mth high vs dollar

(updates, add details, quote)

By Anirban Nag

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

The euro also rose to a 14-month high of $1.4315 (EUR=: Quote, Profile, Research) on
steady buying by Asian central banks, with large option barriers
cited at $1.4350 and $1.4400 which could cap gains in the near

The euro has been buoyed by policymakers’ signals that the
European Central Bank will raise its benchmark interest rate on
Thursday despite the debt crisis in the bloc’s weaker economies.
Portugal’s auction of six- and 12-month T-bills met healthy
demand from investors bidding at higher yields. [ID:nLIS002626]

The focus in the currency markets was, however, on the
struggling yen which was threatening to breach key long-term
support levels against most currencies, having already fallen to
a 2-1/2 year low against the Australian dollar.

The yen has slid 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 the ECB 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 dollar was up 0.2 percent to 85 yen, easing from highs
on profit taking by Japanese retail investors. It 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.

Commerzbank said in a note dollar/yen was poised to
challenge the next band of resistance. “We would allow for
profit taking here but then look for a break higher to 87.55 yen
then 94.50,” it said.

Indeed, macro funds, already running long dollar and short
yen positions, are said to be looking to buy topside strikes
above 90 yen with 1-3 month maturities.

The euro is also 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 ends its two-day meeting on Thursday and
should at least signal a willingness to ease further, if needed
[ID:nL3E7F53CH]. In contrast, the ECB is certain to raise rates
for the first time since July 2008 on Thursday. [ID:nN05113951]

“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.
(Editing by Patrick Graham/Ruth Pitchford)

FOREX-Yen struggles near lows, euro at 14-mth high vs dlr