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FOREX-Euro boosted by Greece aid deal hopes, yen wobbly

by on November 22, 2012 4:03 pm GMT
 

Thu Nov 22, 2012 11:03am EST

* Euro at 6-1/2 month high versus yen, 3-week high vs dollar

* Helped by expectations of an eventual Greek deal

* Euro zone flash manufacturing PMI not as bad as forecast

* Yen slides to 7-1/2 month low versus U.S. dollar, Aussie

By Philip Baillie

LONDON, Nov 22 (Reuters) – The euro hit its highest point
against the yen since late April on Thursday on expectations
that international lenders will soon agree an aid deal for
Greece and that Japan will ease monetary policy again.

The single currency also rose to a three-week high against
the dollar helped by euro zone data showing manufacturing
activity slowed less than expected in November.

The PMI data eased some concerns about a deepening euro zone
recession, adding to the sense of relief after an earlier survey
showed manufacturing in China expanded for the first time in 13
months.

But gains looked fragile as the euro zone economy was likely
to struggle in coming months, keeping alive the chances of
further interest rate cuts by the European Central Bank.

The euro hit 106.585 yen, and by mid afternoon was up 0.3
percent at 106.20 yen. More gains could see it target
resistance at the 100-week moving average around 106.69 yen.

The single currency rose 0.4 percent on the day to $1.2876
according to EBS data, its highest since early November.
Traders cited steady buying by U.S. investors with sentiment
helped by lower yields on Greek and Spanish bonds.

“The lack of any really bad news today has helped euro
higher after the failure of lenders to agree on a Greece deal
earlier in the week,” said Saeed Amen, quantitative FX
Strategist at Nomura.

German Chancellor Angela Merkel said on Wednesday an
agreement to release aid to Athens was still possible next
Monday, helping the euro recover after Greece’s international
lenders had earlier failed to reach a deal.

“There is less concern about whether a deal on Greece will
eventually be struck,” said Arne Lohmann Rasmussen, head of
currency research at Danske Bank. “People are pricing out the
tail risk on Greece…”

He added that investors were squaring recent short positions
in the euro and other riskier currencies before the long weekend
in the United States. Volumes would be thin, however, due to the
U.S. Thanksgiving holiday on Thursday.

YEN TO SLIDE

Analysts said expectations of aggressive monetary easing in
Japan would encourage yen-funded carry trades, in which
investors borrow in low-yielding currencies like the yen to
invest in higher-yielding assets. That could help the euro
retain its recent gains on the yen.

The dollar has climbed around 4 percent against the yen in
the last seven trading sessions, amid market expectations that
Japan’s next government could push its central bank to implement
more drastic monetary stimulus.

The dollar rose to 82.84 yen, its highest since early
April, in early trade. It then pared some of those gains on
selling by macro funds. The yen also hit a 7-1/2 month low
versus the higher-yielding Australian dollar and
against sterling.

Shinzo Abe, the leader of Japan’s opposition Liberal
Democratic Party, which holds a commanding lead in opinion polls
ahead of a Dec. 16 election, has called for “unlimited” easing
until 2 or 3 percent inflation is achieved and for pushing
short-term interest rates to zero or below.

Analysts say yen weakness could persist until the vote is
over.

“We think the yen will continue to weaken against the dollar
related to elections on December 16 when the BOJ is expected to
be more aggressive in its easing…but the move has been a bit
too fast,” said Marcus Hettinger, Global FX Strategist at Credit
Suisse.

He added the bank’s target for the euro is to reach 108 yen
in three months’ time. But he said he expects a target of 80 for
dollar/yen, largely from dollar weakness in 2013 as the Federal
Reserve considers more monetary easing.

But optimism on the U.S. budget front has grown after
leading legislators recently expressed confidence that they
could reach a deal to avert the so-called fiscal cliff of
spending cuts and tax hikes due to take effect in early 2013.