* Yen off to strong start in Q2 as shorts unwound
* Euro recoups some losses after disappointing data
* Aussie up ahead of RBA rate decision
By Antoni Slodkowski
TOKYO, April 3 (Reuters) – The yen hit a three-week high on
Tuesday on a flurry of stop-loss buying that kicked in after
investors cut back on massive short positions built in recent
weeks, while the euro licked its wounds after disappointing euro
zone manufacturing and jobs data.
The dollar tumbled from the previous day’s peak of 83.31 yen
to a session low of 81.55 after stop-loss trades were
triggered in the 81.90-80 area, with traders citing sales by
offshore leveraged funds and some Japanese investors.
The fall was prompted after traders rushed on Monday to
cover short positions, which according to the Commodity Futures
Trading Commission spiked to a 4-1/2 year high in the week ended
March 27.
The dollar later recovered but was still down 0.3 percent on
the day at 81.85 yen, with investors thinking it was simply
taking a break, sparked by a dip in U.S. Treasury yields after
its February-March rally to 84.19 from 76.21.
“The yen has strengthened technically after this move, and
while its long-term weakening trend remains intact we may see
further correction on the dollar rally over the next few weeks,”
said Teppei Ino, a currency strategist at Bank of
Tokyo-Mitsubishi UFJ in Tokyo.
He said that as the dollar broke below support at the kijun
line on Ichimoku charts at 82.10 and the five-day moving average
pierced the 21-day moving average to form a “death cross”, the
greenback was poised to test support at the lower Bollinger band
at 81.33.
The apparent correction is kicking in after the dollar’s 6.4
percent rise this year saw it overshoot on the topside to be
above its fair value of around 81.65 based on U.S. Treasury
yield signals, said Societe General analyst Sebastien Galy.
“It suggests we may still fade a bit lower towards that
level, helped by the upcoming Fed minutes. Eventually though
sentiment will turn around, with the NFP as the next potential
trigger for a move higher,” he added, referring to Friday’s U.S.
non-farm payrolls report.
The yen also muscled in on the euro, hitting a two-week high
108.70, and pulling away from Monday’s low of 111.13,
a move that confirmed strong resistance for the euro above the
111.00 area after it failed to breach that for three weeks in a
row.
LICKING WOUNDS
The euro licked its wounds after dipping to this week’s low
of $1.3278 on Monday as data showed unemployment in the
euro zone reached its highest in almost 15 years in February,
and manufacturing contracted for an eighth straight month in
March.
It recouped some losses, gaining 0.2 percent to $1.3344
, inching back towards Monday’s high of $1.3381. Since the
mid- to late-March rally from $1.3000 to $1.3386 fizzled out it
has been drifting in a relatively thin $1.3250-3400 range.
The data from the euro zone was in contrast with the U.S.
Institute for Supply Management’s index of manufacturing
activity, which rose to 53.4, exceeding forecasts. On Sunday,
China’s Purchasing Managers’ Index hit an 11-month high.
Commodity currencies such as the Australian dollar also lost
ground on the yen, but were a shade stronger versus the dollar
ahead of an interest rate decision by the Reserve Bank of
Australia.
The Aussie bought $1.0444, up 0.3 percent on the
day, nearing immediate resistance at the high of $1.0470 hit on
Monday. On the Japanese currency, it fetched 85.55 yen
, down from the overnight high of 86.74 yen.
The Aussie was supported by Australian retail sales data,
which came out broadly in line with forecasts, but traders
awaited the more important RBA decision at 0430 GMT.
A recent batch of soft local data had prompted markets to
price in a one-in-three chance of a rate cut, although none of
the 18 economists polled by Reuters expect a move.
“We expect the RBA to keep rates at current levels for the
rest of the year,” BNP Paribas analysts wrote in a client note.
“With euro zone concerns considerably abating, the external
environment, which has been one of the RBA’s main concerns, may
put the central bank at ease. In addition, the China PMI rebound
supports the RBA’s apparently relaxed stance on China.”
