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Markets

Dollar up vs yen, investors brace for Japan intervention

LONDON : The dollar rose slightly against the yen on Monday, buoyed above an all-time low as investors covered short pos
Published August 22, 2011

 LONDON: The dollar rose slightly against the yen on Monday, buoyed above an all-time low as investors covered short positions in the US currency on speculation Japanese authorities may soon intervene to weaken the yen.

The euro was on the back foot after German Chancellor Angela Merkel on Sunday rebuffed calls for the euro zone to issue joint euro-denominated bonds as a way for fiscally weak euro zone countries to borrow.

Many in the market expect the risk that the euro zone debt crisis will deteriorate amid a darkening global economic outlook will keep upside pressure on the yen and the Swiss franc due to the perception they are safe assets during times of economic uncertainty.

But investors are wary of pushing either currency much higher for the moment given ongoing speculation that Japan will directly enter the market to sell the yen, while Switzerland may implement further measures to increase liquidity in its domestic currency to stem its rise.

Focus was on when Japanese authorities may prop up the dollar against the yen, after the US currency late last week tumbled to 75.94 yen, its weakest level since World War 2.

Japanese officials have said they have no plans to intervene often in the yen, but analysts believe that a single dose of yen selling will do little to stop the yen's surge, as a $60 billion foray earlier this month demonstrated.

"Interventions they've done in the past, they've stopped the move for the time being but they will have to keep coming back into the market," said Richard Falkenhall, currency strategist at SEB in Stockholm.

"The market knows that the pressure is on the downside, and the only thing that can take the cross higher is intervention."

In early European trade, the dollar edged up 0.2 percent to 76.70 yen.

Aggressive yen selling earlier this month by Japan pushed the dollar up above 80 yen, but persistent "safe-haven" demand to buy the yen has continued to pressure the dollar lower.

Traders talked of hefty sell-stops below 75.00, a level Japanese authorities are likely to keep the yen well away from.

"I suspect there is a line drawn in the sand at 76.00. That's a factor which has clearly pushed dollar/yen off the lows," said Greg Gibbs, strategist at RBS in Sydney.

The level may be difficult to defend after Japanese exporters were spotted selling the dollar during the Tokyo fix and briefly pulled it towards late New York levels.

Immediate focus for where intervention might stall is at 78.60 and 79.22 levels - the 61.8 percent and 76.4 percent Fibonacci retracements of the dollar/yen slide to record lows post-intervention.

The euro was flat on the day at $1.4400, having slipped to $1.4347 in earlier trade, while it was little changed against the Swiss franc at 1.1311 francs.

The Swiss franc continues to keep its distance from a life-time high of 1.0075 per euro hit earlier this month, after the Swiss National Bank has ramped up franc liquidity by increasing sight deposits and selling the franc via swaps on the forward market.

Market participants say the euro may come under renewed selling pressure this week and fall towards $1.40 if there is sign the euro zone debt crisis is spreading to other countries including Italy, Spain and France.

Investors also anticipate Federal Reserve Chief Ben Bernanke's speech at Jackson Hole, Wyoming, on Friday, to see if he will suggest the possibility of more stimulus measures for the economy, although many expect he will not announce a third round of quantitative easing.

 

Copyright Reuters, 2011

 

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