FOREX-Yen jumps most in a month as hedge funds pile in

Fri Jan 27, 2012 2:45am EST

Related Topics

* USD/JPY dips early on exporter selling

* Extends losses as speculators target stops at 77.20, 77.00

* Euro among best performers this week, up 1.7 pct vs USD

* Aussie, NZD near 3-month peaks after USD post-Fed dip

By Antoni Slodkowski

TOKYO, Jan 27 (Reuters) - The yen was on track to post its biggest daily gain in a month against the dollar on Friday, as exporters stepped up month-end purchases and hedge funds piled in, triggering stop losses, traders said.

Japanese corporates sold the dollar which had been drifting lower after hitting a two-month high this week. This prompted hedge funds to follow suit, pushing the greenback through support at its 100-day moving average of 72.20 yen.

The dollar sank as low as 76.90 yen and came close to a support at a trendline off its Oct. 31 low at 76.70 yen.

"Exporters were aware that the bullish yen trend hasn't changed and this week's squeeze may have been their only chance to sell at higher levels for another couple of months," said a senior spot trader for a major Japanese bank who did not want to be identified by name.

The dollar hit a two-month high of 78.29 yen on Wednesday after Japan reported its first annual trade deficit since 1980, but the rally stalled right below resistance at its 200-day moving average.

"The yen will now likely get stuck in its familiar tight range, at least for the next few weeks," the trader said.

On the back of the move against the dollar, the yen also muscled in on the euro, pulling it 0.5 percent lower to 100.96 yen.

CARRY TRADES

The single currency managed to hold onto hefty gains against the dollar, made in the wake of the Federal Reserve's pledge to keep rates near zero for the next three years which encouraged dollar carry trades.

The Fed's move pushed the greenback to a five-week low on the euro overnight. The euro traded at $1.3096, on track to be one of the week's best performers with a gain of 1.7 percent. It touched a high of $1.3184 on Thursday but faltered short of major resistance in the $1.3199-1.3237 zone.

But analysts thought the dollar unlikely to stay under pressure for much longer at least against the euro.

"We may see one more round of selling in the dollar, but I think everyone knows that the unresolved problems in Europe will come to the fore sooner or later, so the dollar will likely stay supported longer-term," said Sumino Kamei, a senior currency analyst at Bank of Tokyo-Mitsubishi UFJ.

Kamei said Greece continued to pose an immediate threat to the euro's recent gains as debt talks between it and private creditors resume on Friday.

Greek media reported that debt holders may be ready to accept a yield of 3.75 percent on new Greek bonds after euro zone ministers rejected an offer of 4 percent on Monday.

The Fed's decision encouraged the use of the dollar in carry trades and sparked big gains for gold and copper. The dollar index was at 79.41, recovering a little from 79.067 -- its lowest in over six weeks hit on Thursday.

It also supported commodity currencies, with the Australian and New Zealand dollars hovering near three-month highs. The kiwi has been a clear outperformer this year with a gain of 5.6 percent, while the Aussie has added more than 3.8 percent.

The United States will release GDP numbers later on Friday with forecasts pointing to a 3 percent bounce in the October-December quarter.

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