FOREX-Euro falls from 7-mth high vs yen, focus on Greece deal

Mon Nov 26, 2012 7:14am EST

Related Topics

* Euro edges lower from 7-mth high vs yen

* Markets hopeful of an aid deal for Greece later today

* Resumption of U.S. fiscal cliff talks also eyed

By Philip Baillie

LONDON, Nov 26 (Reuters) - The euro retreated from a seven-month high against the yen on Monday as traders booked profits on its recent rally, although expectations that Greece was on the verge of securing new emergency loans were checking losses.

Euro zone finance ministers meet on Monday for the third time in as many weeks to hammer out a deal to get international lenders to release aid to Greece in time for debt repayments due mid-December.

German Chancellor Angela Merkel has said that she was confident a deal could be reached, while the French finance minister said on Sunday an agreement was close.

A deal could give the euro a fillip, especially against the struggling yen which has been under pressure in the past few weeks on mounting speculation that a new government after next month's general elections will force the Bank of Japan to ease monetary policy aggressively.

The euro was down 0.4 percent on the day at 106.60 yen , having hit 107.135 yen on trading platform EBS in Asian trade, the single currency's strongest level since late April. It has risen nearly 4.5 percent in the past two weeks as investors and speculators added positions and sold the yen.

Against the dollar, the euro was flat at $1.2975, having hit $1.2991 on Friday, its highest since late October.

The dollar was weaker against the yen at 82.15 yen, with some investors unwinding long positions betting on dollar gains that have been built in recent weeks. There was talk of persistent buying from hedge funds for dollar/yen call options that expire in three to six months, suggesting they are bullish on the dollar and bearish toward the yen.

"The market has been quite long euro/yen so it is quite natural that dollar/yen has had a bit of a pullback where euro/yen has done the same," said Daragh Maher, currency strategist at HSBC.

"I don't think there is any conviction in selling the euro as you may have some kind of announcement on Greece, which will probably see a pop higher."

Expectations of a deal for Greece overshadowed an election victory for separatists in the Spanish region of Catalonia on Sunday.

The win raised some concerns over the potential negative impact on the Spanish economy and the country's finances as Catalonia makes up 20 percent of the economy and provides most tax revenue to the central government.

But HSBC's Maher said Greece was the main concern and with no sign of a referendum on independence in Spain for the next year at least, the euro was likely to retain its recent gains.

FISCAL CLIFF

The dollar index was flat at 80.215, hovering close to a three-week trough of 80.128 plumbed on Friday as some speculators cut bets in favour of the U.S. currency. Net long positions in the dollar rose to $4.72 billion in the week ended Nov. 13 from $1.296 billion the previous week.

Traders said budget talks in the United States would hold sway for the dollar in the near term.

The White House and Congress are set to resume negotiations this week to avoid $600 billion of automatic tax hikes and spending cuts in January that are known as the 'fiscal cliff'. Analysts fear if those are allowed to kick in, they could tip the world's biggest economy into recession.

"We see a stop gap solution coming through by the end of the year (on the fiscal cliff)," said Geoffrey Yu, currency strategist at UBS.

"We see a stronger dollar, a resolution clears a major event risk and probably means cuts will not be aggressive either which would support U.S. yields because of increased confidence in growth."

UBS's Yu added a swift resolution on the U.S. fiscal cliff and a Greek aid deal could help lift riskier currencies although it would not be as much of a market-moving event as similar talks last year on the U.S. debt ceiling.

The growth-linked Australian dollar was trading steady at $1.0455, not far from Friday's three-week high of $1.0470.

FILED UNDER:
Comments (0)
This discussion is now closed. We welcome comments on our articles for a limited period after their publication.