FOREX-Euro recovers but seen vulnerable, yen stays weak
* Euro steadies, stays above strong chart support at $1.30
* But vulnerable to euro zone growth and rate cut worries
* Yen steadies but any gains seen limited
By Jessica Mortimer
LONDON, April 18 (Reuters) - The euro edged up on Thursday, staying above key chart support at $1.30 but it remained vulnerable after falls the previous day on talk of more monetary easing by the European Central Bank.
The yen steadied, though market participants still expected it to push lower due to aggressive monetary easing in Japan. But its falls were expected to be slow as the dollar faced stiff chart resistance before the 100 yen mark.
The euro was up 0.1 percent at $1.3034, regaining support after sliding by 1.1 percent on Wednesday, its biggest one-day percentage drop since last June.
It stayed above strong chart support at $1.30, having hit a low just above there on Wednesday at $1.3001.
The euro took a hit on Wednesday after ECB Governing Council member Jens Weidmann was quoted by the Wall Street Journal as saying the bank could ease further if economic data warrants it.
Analysts were sceptical about how negative this would be for the euro. Unlike Japan and the United States the ECB is not printing money via quantitative easing, which tends to weaken the currency. Some also believed a rate cut could be positive for the euro zone growth outlook.
However, worries about the euro zone's growth outlook and about the potential for a flare-up in the euro zone debt crisis meant any gains for the euro would be limited.
Neil Mellor, currency strategist at Bank of New York Mellon, said the euro had benefited from investors looking for alternative currencies to hold since the Bank of Japan's aggressive monetary easing caused the yen to depreciate.
"In periods of relative stability the euro can become the default option for investors who are looking for deep and liquid markets."
But he warned the euro remained at risk from euro zone troubles, with presidential elections in Italy beginning on Thursday and the Cyprus bailout still not completely resolved.
"I see $1.30 being tested and a potential break lower," he said. He said once the euro made a firm break below $1.30 it could target support around $1.27.
Against the yen, the euro was steady at 127.86 yen, staying clear of its recent three-year high of 131.11 yen.
YEN STILL SHAKY
The dollar was down 0.15 percent at 97.96 yen, with traders reporting selling by Japanese institutional investors. This selling was expected to be limited, however, while bids were reported around 97.60 yen.
The dollar hit a four-year high of 99.95 yen last week, with its rise stalling just short of the psychologically key 100 yen threshold due to options-related dollar offers.
"The upward bias in dollar/yen is still intact, but it is difficult to fine tune and we will see see-saw movements," said Neil Mellor, currency strategist at Bank of New York Mellon.
He said the broad trend for yen weakness could be stalled periodically by Japanese investors "bringing capital home" to cover losses in other assets.
Other analysts said the yen was still finding support when markets became nervous about the outlook for global growth.
"What we do see right now is that (when there is) a bit of a reduction in risk appetite ... the yen still continues to strengthen," said Roy Teo, FX strategist for ABN AMRO Bank in Singapore.
But most market players still see the yen eventually weakening beyond 100 to the dollar.
The BOJ's radical monetary policy overhaul will pump about $1.4 trillion into the economy in less than two years, via a hefty bond-buying scheme that is expected to drive Japanese investors to look overseas in search of better yields.
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