FOREX-Euro gains on encouraging euro zone data, yen resumes slide

Thu Jan 24, 2013 8:23am EST

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By Anooja Debnath

LONDON, Jan 24 (Reuters) - The euro rose against the yen and the dollar on Thursday after economic data from Germany and the broader region indicated the worst of the euro zone debt crisis may have passed.

The euro saw choppy trade after flash private sector activity data highlighted the diverging fortunes of the bloc's biggest economies, with weak performance in France balanced out by numbers out of Germany showing its private sector expanded at the fastest rate in a year.

Traders said that macro funds and asset managers were buying the euro and that if data continued to show prospects for the region were improving, the currency could rise further.

"The euro dipped on French numbers and was up on the German data. On the whole there is positive sentiment for the euro," said Niels Christensen, FX strategist at Nordea.

"(It) seems capped at $1.34 for now, but it is fair to say the euro is still firm across the board."

The common currency was up 0.1 percent against the dollar at $1.3330, not far from $1.3404, an 11-month high hit on Jan. 14 that is also acting as near-term resistance. Support was cited at $1.3250, near lows touched on Jan. 11.

The euro was up 1.2 percent against the yen at 119.39 yen, inching towards a 20-month high of 120.73 yen hit on Friday. Traders cited Asian central banks as main buyers of the euro as they stepped up yen-selling.

The market will also be watching the influential German Ifo survey due on Friday.

Some analysts said the announcement on the size of next week's first repayments of cheap three-year loans taken by banks from the European Central Bank just over a year ago could give the euro a bit of a lift.

Banks took more than 1 trillion euros in the LTRO (long-term refinancing operation) loans from the ECB. A Reuters poll showed traders expected about 100 billion to be paid back next week.

Option traders reported strong demand for euro calls - bets that the euro will rise - for expiry on Friday.

YEN SLIDE RESUMES

The yen fell across the board. The dollar was up 1.1 percent on Thursday, at 89.60 yen against the Japanese currency, pulling away from a one-week low of 88.06 yen hit the previous day.

Traders said this move up in dollar/yen could face some resistance ahead of stop-loss sell orders at 90 yen, but if it does break through it could reach 90.25 yen, a 2-1/2 year high hit on Monday.

Some Japanese politicians have said that the dollar's rise to 100 yen would be welcome and help the economy. Those comments along with position-squaring by speculators who bought the yen in the past few session drove the Japanese unit lower.

"We see the yen begin to weaken again after comments that the 100 level in dollar/yen is appropriate, so a lot of people will start selling the yen and this will continue," said Adam Myers senior FX strategist at Credit Agricole.

The yen's weakness became further entrenched after Japanese Prime Minister Shinzo Abe said he expected the Bank of Japan to achieve its 2 percent inflation goal as soon as possible.

"Investors are very quick to take advantage of any pullback in dollar/yen and as soon as we get some yen negative news, investors are happy to put on new short positions. The yen's negative underlying trend firmly in place," Nordea's Christensen said.

The yen had rebounded earlier this week after the BOJ disappointed some, who were expecting an immediate increase in its asset-purchasing programme. This was despite the central bank delivering its most aggressive policy easing yet to snap the economy out of years of stagnation.

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