FOREX-Dollar slip continues, gives ground vs yen

Published 10/05/2010, 08:05 PM
Updated 10/05/2010, 08:08 PM

* Dollar at 8-month lows on index, vs euro

* Dollar/yen hovers above 83 yen after dip below it

By Charlotte Cooper

TOKYO, Oct 6 (Reuters) - The dollar was stuck near eight-month lows against the euro on Wednesday and was losing ground against the yen after shedding all the gains it made in the previous session following easing by the Bank of Japan.

Riskier assets including stocks and higher-yielding currencies rallied on Tuesday following Japan's step and a report showing U.S. services expanded more than expected in September, encouraging risk-taking but not dispelling expectations of further easing in the United States as well.

The Bank of Japan's decision to lower its overnight rate target and create a pool of funds to buy assets to shore up the economy came as markets speculate that the Federal Reserve will resume quantitative easing later this year.

The dollar has been under selling pressure on expectations of further Fed measures, prompting Japan to intervene last month for the first time in six years to drive the yen off a 15-year high as it worried that yen strength was harming the economy.

Matthew Strauss, a senior FX strategist RBC Capital Markets, said the market seemed to have divided currencies into two groupings of QE and non-QE, with the yen, the dollar and sterling in the first group and the euro the most prominent in the second.

"Additional QE measures in one of these 'member' countries are seen as increasing the risk of further QE in the other 'QE member' countries," Strauss wrote in a client note.

The dollar stood at 83.20 yen in early Asian trade, well down from its post-BOJ high of 83.99 and less than half a yen away from its 15-year low of 82.87 yen set in mid-September shortly before Japan chose to intervene.

"The low of 15 September has become an important support level. A successful move lower could well trigger a new wave of yen buying as the market search for the next line in the sand," Strauss said.

The euro was steady at $1.3835, having hit an eight-month high of $1.3860 on Tuesday helped by buying by Asian central banks, traders said.

On the charts its next target is $1.3895, a 61.8 percent retracement of its fall from above $1.51 late last year to its June low. It then has its 200-week moving average at $1.3920 as the next resistance levels and support sit at $1.3790-1.3805.

The dollar index, a measure of its strength against six major currencies, stood at 77.750 after dropping as far as 78.687 on Tuesday to its weakest since late January.

Support is plotted at 77.60-61, which is a 76.4 percent retracement of its rise from November last year to a high in June. (Contribution by Reuters FX analyst Krishna Kumar in Sydney; Editing by Michael Watson)

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