Dollar Retreats From 30-Month High Against Yen On Profit-Taking

The greenback retreated from 30-month high against the Japanese yen on Tuesday on profit-taking amid speculation that the Bank of Japan is likely to ease monetary policy more aggressively in near future.

Versus the Japanese yen, the greenback extended recent upmove to a fresh 30-month high at 89.67 in Australia on speculation that the Bank of Japan will take aggressive measures later but price then eased to 89.38 in Asian morning. Later, despite brief rise to 89.64, failure to re-test said 89.67 triggered profit-taking and price retreated to 89.08 in New York morning due to cross unwinding of yen versus other currencies before recovering to 89.38 at New York midday.

Earlier in Australia, the USD/JPY was supported on the news that Japanese Prime Minister Shinzo Abe said on Sunday that the Bank of Japan must set a 2% inflation target and make it a medium-term goal rather than a long-term objective.

Although the single currency rose initially to a fresh 10-month high at 1.3404 in Asia, the pair retreated sharply to 1.3348 in European morning on profit-taking together with cross selling of euro versus yen. Despite brief but sharp rebound to 1.3390, renewed selling interest sent price further lower to 1.3336 in New York morning before rising again to 1.3395 in late New York after relative dovish comments from Fed's Bernanke. Bernanke suggested the central bank was in no hurry to withdraw monetary stimulus from the world's biggest economy. Ben Bernanke also said that the recovery was still fragile and warned the economy was at risk from political gridlock over the deficit.

Although the British pound initially rose to 1.6156 in Asian session, the pair edged lower in tandem with euro in Europe and active cross selling of sterling vs euro and yen sent the pair below last Friday's low at 1.6089 to 1.6031 in New York morning before staging a strong rebound to 1.6092 in late NY.

On the data front, eurozone industrial output in November came in at -0.3% m/m and -3.7% y/y, worse than expectation of 0.1% and -3.2%, and the revised -1.0% and -3.3% in October.

News about U.S. fiscal cliff, U.S. President Barack Obama said:

The U.S. economy is poised for a good year as long as Washington politics don't interfere; the U.S. has made progress on deficit reduction, is moving toward goal of a $4 trillion reduction; the U.S. can't finish the job of deficit reduction through spending cuts alone; raising the debt ceiling does not authorize more spending, simply allows the country to cover bills it has; the U.S. cannot afford another debate with this Congress over whether it should pay U.S. bills; the U.S. may dip into recession if the debt ceiling not raised.

In other news, San Francisco Fed President John Williams said "bond-buying will need to continue until well into second half of 2013; the Fed is missing on both goals, especially employment; Fed will keep rates now as long as as needed to promote recovery, meet goals." Atlanta Federal Reserve Bank President Dennis Lockhart said '"open-ended" QE does not mean "without bound;" program is not "QE infinity;" there is a risk in the Fed's cumulative Treasury/MBS purchases could have adverse effect on market functioning and financial stability; majority of Fed officials still believes liftoff date for FOMC's policy rate will be in 2015 or later.'

Data to be released on Tuesday:
Japan Machine tools orders, Germany CPI final, HICP final, GDP in 2012, Italy CPI final, HICP final, U.K. RICS house prices, CPI, RPI, PPI input, PPI output, PPI core, ONS House price, U.S. Empire state manufacturing, PPI, PPI core, Retail sales, Redbook retail sales, Business inventories.