LONDON: The Japanese yen slid to a nine-month low against the dollar on Monday, helped by the break of a key chart level, while the euro dipped but stayed close to recent highs ahead of a fresh injection of liquidity by the European Central Bank.
The dollar rose to a high of 81.661 yen in early Asian trade, a gain of more than 7 percent since the start of month, though it later eased back to last trade at 80.85 yen, with traders citing euro/yen selling by Japanese exporters and a reported options barrier at 82 yen.
Some analysts said the dollar may have limited scope to gain much above 82 yen given there is a possibility of more monetary easing by the US Federal Reserve.
"For dollar/yen to trade higher you need to see interest rates in the US and other countries outside of Japan move higher. This would be the trigger for long-term weakness, but it is not the case yet," said Richard Falkenhall, currency strategist at SEB in Stockholm.
He said, however, that there might be some scope for some limited gains in the short-term.
Dollar buying accelerated after it broke 80.94 yen on Friday, taking it above the weekly Ichimoku cloud level, a closely watched technical indicator. Chartists saw this as a major bull sign as the dollar has not closed above that indicator since 2007.
Concerns were also growing that higher oil prices could dampen global growth, potentially dampening risk appetite which may also weigh on the euro and other riskier currencies.
But that also keeps investors thinking about the risk of another round of bond-buying by the US Federal Reserve that would keep US Treasury yields low.
The Japanese currency has retreated in recent weeks following a surprise easing by the Bank of Japan, a fall in the country's current account surplus and a rise in short-term US bond yields, helped by signs of improvement in the US economy.
Commonwealth Bank of Australia raised its dollar/yen forecasts to 90 yen by the end of September and 92 yen by year-end on the expectation that Japan's terms of trade to deteriorate in the coming months.
The euro climbed to 109.915 yen, the highest since Oct. 31, before ceding much of its gains to trade at 108.68 yen.
"The dollar/yen appears to be coming close to a peak. The latest fall in the yen has been primarily driven by a fall in short-term Japanese bond yields but there's limited room left for them to fall," said Hideki Amikura, forex manager at Nomura Trust.
ECB CHEAP FUNDING
The euro stood at $1.3427, down 0.2 percent on the day but not far off a 2-1/2 month high of $1.3486 set on Friday.
More gains were seen possible before the ECB's second offering of cheap unlimited 3-year loans to European banks on Wednesday, though the gains could be short lived as concerns grow that the funds may equate to a form of quantitative easing.
Euro zone M3 money supply - a general measure of cash in the economy - grew at an annual 2.5 percent in January data showed on Monday, picking up from 1.5 percent in December and well above expectations of analysts polled by Reuters.
A Reuters poll of economists shows that banks will take 492 billion euros, close to the 489 billion borrowed in the first deal just before Christmas.
"At least for now a large ECB LTRO could be positive for the euro as the market will focus on the positives and it will increase risk appetite," SEB's Falkenhall said.
Progress in easing the debt crisis was made earlier this month when finance ministers agreed to a second bailout for Greece, but hurdles remain and one of them was highlighted by the weekend meeting of the Group of 20 leading economies.
European members were told they must put up extra money to in return for more help from the rest of the world, putting pressure on Germany to drop its opposition to a bigger overall European bailout fund.
The euro may also be helped short-term as investors cut back on hefty bets on the euro falling. Data has shown speculators reducing net short euro positions from a recent record, but they remain at elevated levels, leaving scope for more short covering.
The dollar index was up 0.2 percent at 78.530, though it stayed not far from Friday's trough of 78.220.
Riskier, growth-linked currencies fell, dented by weaker equities as worries grow about the impact of higher oil prices on growth. The Australian dollar was down 0.4 percent at $1.0654, away from a six-month peak of $1.0845 hit on February 8.
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