REFILE-FOREX-Euro buoyed as crisis fears fade, yen falls

Sun Jan 27, 2013 8:04pm EST

Related Topics

* Bank repayments of ECB emergency loans, German data help euro

* But euro faces major resistance below $1.35

* Yen undermined by BOJ expectations, rising risk appetite

* Dollar/yen up 0.2 pct

By Hideyuki Sano

TOKYO, Jan 28 (Reuters) - The euro was buoyed near an 11-month high against the dollar on Monday on mounting signs of recovering economic confidence in Europe, while the yen slipped to a 2-1/2-year low versus the dollar on expectations of more monetary easing in Japan.

Data on Friday showed European banks are repaying more than expected of the emergency loans they borrowed from the European Central Bank (ECB) during the debt crisis, in a sign of their growing confidence.

German business morale also improved for a third consecutive month in January to its highest in more than half a year, more evidence that Europe's largest economy is gathering speed again after contracting late last year.

The euro fetched $1.3459, flat from late U.S. levels last week but not far below an 11-month high of $1.3480 hit on Friday.

The single currency looks set to face a series of major resistance levels near $1.35, including its 2012 high of $1.34869, the 50 percent retracement from the high in May 2011 to the low in July 2012 at $1.3492, and the psychologically-important $1.3500 figure.

The euro was also helped by the perception that the ECB's monetary policy is less loose than that of the U.S. Federal Reserve.

"While the Fed is still taking an accommodative policy stance, the ECB isn't. The fact that banks are returning loans to the ECB also means a smaller balance sheet at the ECB," said a trader at a Japanese bank.

"This difference in monetary policy stance is likely to help the euro in the very near term," he said.

The common currency also hit a 21-month peak versus the yen of 122.90 yen, with its 2011 high of 123.33 seen as the next possible target.

On the other hand, the yen had no reprieve from its two-month-old downtrend, hitting a 2-1/2-year low against the greenback, on expectations of further monetary easing down the road.

During the weekend, Japan's economy minister rejected criticism that his country's extraordinary fiscal and monetary stimulus programme was aimed at weakening the yen.

The dollar climbed as far as 91.26 yen, its highest level since June 2010.

The decline of the yen also reflected a rise in U.S. bond yields, with which the currency has a close inverse correlation.

The 10-year U.S. bond yield shot up on Friday, helped by optimism on the global economy. Wall Street shares also gained, with the S&P 500 index hitting a five-year high.

FILED UNDER: