* Fed’s delayed rate-hike expectations help dollar rivals
* Some euro short positions remain -strategist
* Dollar faces tough resistance around 78.30 yen
* Aussie hits nearly 3-mth high in thin holiday trade
TOKYO, Jan 26 (Reuters) – The dollar gave back some of
its gains against the yen and extended losses to hit a fresh
five-week low against the euro in Asian trading on Thursday
after a more dovish-than-expected outcome to the Federal (SES: E1:F20.SI – news)
Reserve’s latest meeting pressured it overnight.
Fed Chairman Ben Bernanke said the U.S. central bank might
consider further monetary easing through bond purchases. The Fed
also pushed back the likely timing of an eventual interest rate
hike until late 2014, 18 months later than its previous
expectations.
The greenback slipped to 77.63 yen, following its
overnight rise to a two-month high of 78.28 yen on the EBS
trading platform.
“After the Fed, the dollar will have a harder time
continuing this week’s gains against the yen. The topside has
gotten heavy,” said Teppei Ino, currency analyst at Bank of
Tokyo-Mitsubishi UFJ.
Strong technical resistance was cited around 78.30 yen, with
the 200-day moving average now at 78.33 yen. The 61.8 percent
retracement of the pair’s October-January fall also lies at
78.31 yen, while support is seen at the long term trendline at
77.53 yen.
Japanese life insurers, which normally reduce their holdings
of riskier assets and bolster holdings of yen bonds before the
end of the business year on March 31, are likely to keep the
dollar well off the 80-yen mark at least until then, said a
senior spot trader for a major Japanese bank in Tokyo.
The dollar index eased to a five-week low of 79.357
before steadying at 79.392. The euro rose to a five-week
peak of $1.3127, and last bought $1.3117.
While the single currency’s climb has led many investors to
cut back what had been significant short positions, some of
these positions remain, leaving it vulnerable to short squeezes
even as concerns about Europe (Chicago Options: ^REURUSD – news) ‘s debt situation remain.
“The euro could continue to make short-term gains as the
remaining positions are covered, so its downside risks are low
for now,” said Kimihiko Tomita, head of foreign exchange for
State Street Global Markets in Tokyo.
But the euro faces upside challenges from remaining concerns
about Europe’s ability to come to grips with its debt crisis,
with any negative developments seen as giving investors an
excuse to sell into the short-squeeze rallies.
TICKING CLOCK
Greece remains in focus, as the top negotiator for private
creditors is scheduled to return to Athens later on Thursday to
resume talks with officials on a debt swap deal, as the clock
ticks ahead of a March deadline when Greece faces major bond
redemptions.
The euro changed hands at 101.83 yen, just shy of
a fresh one-month high of 101.97 yen hit in early Asian trade,
and moving further away from an 11-year low of 97.04 yen marked
on Jan. 16.
Japanese exporters have set their euro rate targets at 105
yen, so many traders believe selling pressure will intensify
ahead of that level.
“The euro’s gains against the yen are mostly a reflection of
the influence of the dollar’s weakening against the euro, and
the yen’s weakening against the dollar, rather than any
fundamental move,” Bank of Tokyo-Mitsubishi UFJ’s Ino added.
Both the Australian dollar and its New Zealand counterpart
retreated after touching their highest levels since Oct (KOSDAQ: 039200.KQ – news) . 31.
With Australian markets closed for a holiday on Thursday,
the Aussie bought $1.0626 after rising as far as
$1.6039 in thin trading conditions, its highest level since Oct.
31. With a test of the September and October highs in the
1.0750/65 area now possible, the weekly Ichimoku cloud top at
$1.0561 could offer an entry point, according to a technical
analyst.
Looking further ahead, the actual details of the federal
funds rate forecasts by FOMC members are open for interpretation
in the months ahead.
The U.S. central bank said a subdued outlook for inflation
over the medium run was likely to warrant “exceptionally low”
levels for the federal funds rate at least through late 2014.
But the Fed’s release also shows the average forecast from the
17 FOMC members for the rate at the end of 2014 is 1.1 percent,
while the median is 0.75 percent — far above the current policy
target of zero to 0.25 percent.
“The market reacted without looking into the details, which
show many Fed members are not as dovish as the Fed’s statement
sounds. The Fed says it introduced new announcements to improve
communication with markets but this could be seen as
misleading,” said an economist at a Japanese brokerage.
(Additional reporting by Hideyuki Sano and Antoni Slodkowski in
Tokyo and and Reuters FX analyst Rick Lloyd in Singapore;
Editing by Joseph Radford)
