FOREX-Yen’s fall extends, threatens breach of long-term supports

* Yen drops to 2-1/2 year low vs Aussie

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

* Carry trade revival hurts funding currencies

* Euro climbs to 5-mth high vs dollar

* ECB seen building in room to normalise policy

By Ian Chua and Masayuki Kitano

SYDNEY/SINGAPORE, April 6 (Reuters) – The yen extended a
steep decline on Wednesday, hitting a 2-1/2 year low against the
Australian dollar and an 11-month trough against the euro,
threatening a breach of long-term support levels that could pave
the way for further losses.

The Japanese currency also hit a six-month low against the
U.S. dollar, with traders citing yen-selling by macro hedge
funds and Japanese importers.

The yen and other currencies with very low interest rates
such as the Swiss franc have slid over the past couple of weeks
as market volatility declined, stirring talk about the revival
of carry trades, a tactic of selling low-yielding currencies to
fund investment in currencies with higher interest rates.

The yen’s decline brought it close to a series of support
levels against the dollar clustered roughly between 85.65 yen to
86.00 yen, suggesting that the dollar will slow its ascent
against the yen in the near term.

But market players say the broader trend points to a
continuation of yen weakness, given strengthening expectations
that the Bank of Japan will lag behind other central banks in
raising interest rates.

“The yen is weakening due to expectations for interest rates
to rise abroad,” said Tsutomu Soma, senior manager at Okasan
Securities’ foreign securities department in Tokyo.

“In countries other than Japan there are moves toward
raising interest rates or exiting from extreme monetary
easing… But in Japan, a massive amount of funds have been
pumped into the money market as an emergency measure, and there
is no talk of raising interest rates,” Soma said.

The Australian dollar surged 0.7 percent to 88.27 yen
, having earlier climbed to a high of 88.68 yen, its
highest since September 2008, with 90 yen seen as the next
possible target.

The euro hit an 11-month peak of 121.91 yen on
trading platform EBS. It last stood at 121.66 yen, up 0.8
percent, with stop-loss buying having added to its rise.

The euro rose to a five-month high of $1.4282 . A rise
beyond its November peak of $1.4283 would take the euro to its
highest since January 2010.

The dollar rose 0.5 percent to 85.30 yen. The dollar scaled
a six-month peak of 85.53 yen , 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.

That surge in the yen prompted the G7 into a rare bout of
joint intervention that helped curb market volatility and
ultimately led to the start of the yen’s downtrend.

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 may be a sign that a long-term uptrend
in the yen is about to shift, inviting investors who may have
missed some yen weakness in late March to jump on the move in

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.

“If you look at longer term charts, it looks like we may be
at a turning point,” said Soma at Okasan Securities.

“If the dollar breaks above 85.94 yen, we could see a test
of levels around 90 yen,” he added.

In a sign of such market sentiment, 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
[ID:nL3E7F53CH]. In contrast, the European Central Bank is all
but certain to hike rates for the first time since July 2008 on

“We expect that Trichet will confirm the importance of
carefully monitoring inflation, and against a backdrop of a Fed
unlikely to move swiftly to (remove) USD liquidity … our bias
remains for a higher EURUSD post-ECB,” BNP Paribas analysts said
in a note, adding that their target for the euro was $1.45.

(Additional reporting by Yoshiko Mori in Tokyo, Reuters FX
analysts Rick Lloyd in Singapore and Krishna Kumar in Sydney,;
Editing by Kevin Plumberg)

FOREX-Yen’s fall extends, threatens breach of long-term supports