October 20, 2014 / 8:07 PM / 4 years ago

CORRECTED-FOREX-Dollar extends modest losses, volumes wane ahead of data

(Corrects paragraphs 1 and 6 to say the Japanese yen fell instead of strengthened)

* Euro rises vs dollar, yen despite weak German data

* Yen steadies vs dollar after earlier losses

* Sterling 100-day moving average below 200-day moving average

By Daniel Bases

NEW YORK, Oct 20 (Reuters) - Major currencies traded in tight ranges on Monday with investors facing a dearth of new data and modest price changes in global markets, save for Japan where stocks rallied on possible public pension fund spending, which helped bring down the yen.

After a week of wide currency market gyrations, investors appeared unwilling to make fresh bets ahead of Wednesday’s U.S. inflation data and Thursday’s European manufacturing reports

In addition, the Federal Reserve is expected to follow through with its plan to end quantitative easing at the end of the month while benchmark U.S. interest rates are forecast to remain near zero well into 2015.

“I think there is a real risk that if there is a downside surprise in the CPI this could have an outsized reaction in the U.S. Treasury market and dollar,” said Paresh Upadhyaya, portfolio manager, director of currency strategy at Pioneer Investments in Boston.

“It will push Treasury yields lower and could lead to a softer dollar. The bigger reaction would be most felt in dollar/yen. There could be a real risk that 105.50 yen support could be breached,” he said.

The yen fell after Japan’s benchmark Nikkei-225 stock index surged 4 percent on Monday, taking in upbeat U.S. economic data last week as well as news that Japan’s $1.2 trillion public pension fund would likely raise its allocation to domestic stocks to about 25 percent from 12 percent.

Resignations in Prime Minister Shinzo Abe’s cabinet were, in the short term, overshadowed by these external factors.

The dollar fell 0.5 percent against the yen at 106.81 yen while the euro traded at $1.2809, up 0.37 percent.

“The dollar had a really great run against its counterparts over the last two months,” said John Doyle, director of markets at Washington, D.C-based Tempus Inc., adding that he still looks for dollar strength in the coming months and next year.

Sterling regained ground on the dollar after last week’s trough, trading up 0.51 percent to $1.6176. The UK currency’s steep fall has pulled its 100-day moving average slightly below the 200-day one for the first time in just over a year. When a shorter-term moving average cuts below a longer-term one, this is typically seen as a negative signal for the market.

Germany’s central bank said on Monday the German economy risks coming dangerously close to recession, forecasting little or no growth in the second half of 2014.

The European Central Bank, meanwhile, said it started buying covered bonds in a bid to revive the euro zone economy and keep deflation at bay.

The Bundesbank’s gloomy assessment raises the prospect Germany’s economy could stay weak, compounding the problems of the 18-country currency bloc, whose economy is already slowing to a virtual halt.

German producer prices declined for the 14th consecutive month, highlighting the disinflationary pressures causing concern to investors and policymakers alike. (Additional reporting by Jemima Kelly in London and Shinichi Saoshiro in Tokyo; Editing by James Dalgleish)

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