FOREX-Dollar steady vs yen, close to July 2010 highs

Mon Jan 7, 2013 12:26am GMT

* Weekly data show rise in dollar-short positions, suggesting pullback

* Euro/yen could be headed higher after close above 200-week moving average

By Lisa Twaronite

TOKYO, Jan 7 (Reuters) - The dollar traded close to 2 1/2 -year highs against the yen on Monday, while the euro began the week slightly weaker against its major counterparts as investors pondered the possible outcomes of more monetary stimulus this year from Japan and less from the U.S. Federal Reserve.

The dollar was nearly flat from Friday's late U.S. levels, buying 88.16 yen, not far from Friday's session high of 88.48 yen on trading platform EBS, its highest level against the Japanese currency since July 2010.

"The 88.80 yen area is the next immediate dollar target. As the 90 yen area is approached, it may be increasingly important to watch how the yen performs in Asia and whether Japanese corporates try to lock in profits or hedges," said Marc Chandler, global head of currency strategy at Brown Brothers Harriman, in a note to clients.

Buying dollars on modest dips is likely to be some investors' preferred strategy, he said, adding that he anticipates any pullbacks to be limited to the 86.80-87.30 yen range.

The latest positioning data suggests many investors could be preparing for a pullback. Currency speculators increased their bets against the greenback in the latest week, according to data from the Commodity Futures Trading Commission released on Friday.

The value of the dollar's net short positions rose to $9.427 billion in the week ended December 31, from $6.49 billion the previous week. It marked the fourth consecutive week of net dollar short positions, as well as the largest position since the week through Oct. 2, according to Reuters calculation.

The dollar posted a gain of around 2.7 percent against the yen last week, its biggest weekly rise in more than a year.

Its gains accelerated last week after minutes from the Fed's December meeting showed some policymakers has mulled ending their bond-buying program as early as this year.

By contrast, many investors are now betting that Japan's new government, led by Prime Minister Shinzo Abe, will push to weaken the yen and push through aggressive fiscal stimulus, and pressure the Bank of Japan to do the same on the monetary side.

Still, the key monthly U.S. jobs report released on Friday was in line with market expectations, and suggested the Fed may be in no rush to tighten monetary policy.

Nonfarm payrolls grew by 155,000 in December, meeting predictions but falling short of the levels needed to bring down the U.S. unemployment rate, which remained at 7.8 percent.

The euro was steady against the dollar, buying 1.3062, after falling to a three-week low of $1.2998 on EBS on Friday.

But the euro slipped slightly against the yen, down around 0.1 percent to 115.13 yen, moving away from its 18-month high of 115.995 yen set on trading platform EBS on Wednesday last week.

The euro managed a weekly close above its 200-week moving average of around 114.84 yen last week, for the first time since the first week of Oct 2008. Sustained break of long-term weekly moving averages can signal major trend changes, analysts say.

The Australian dollar last traded at $1.0494, up about 0.2 percent, building on its 1.7 percent gain in 2012.

The high-beta Aussie as well as the New Zealand dollar are unlikely to fall much in the months ahead, a Reuters poll showed on Monday, mainly because of a lack of high yielding alternatives.

The median forecast of around 47 analysts showed the Australian dollar maintaining its current level around$1.0400 til March, before gradually crawling lower to $1.0100 by this time next year.

The 12-month forecasts were wide-ranging, from a low of $0.8500 to $1.1200, suggesting uncertainty in the longer-term outlook.

Weekend news that global regulators have given banks more time to build up cash buffers so they can divert some of their reserves to helping struggling economies had no immediate impact on forex markets, but could help lift investors' appetite for risk.

Banks had complained they could not meet the January 2015 deadline to comply with a new global rule on minimum holdings of easily sellable assets from the Basel Committee of banking supervisors and supply credit to businesses and consumers.

The committee's oversight body agreed on Sunday to phase-in the rule from 2015 over four years and widen the range of assets banks can put in the buffer to include shares and mortgage-backed securities.

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