CORRECTED-Technical signs, rising risk appetite, drive yen selling fever

Mon Nov 25, 2013 2:54am EST

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(Corrects Japanese names in paragraphs 9 and 12)

By Hideyuki Sano

TOKYO Nov 25 (Reuters) - Pressure on the yen is rising after six months of relatively calm, range-bound trading, with bears heartened by various technical signs as well as rising global risk appetite.

The Japanese currency skidded to a six-month low versus the dollar on Monday, sending the greenback above its July peak of 101.54 yen to 101.91 yen.

The sudden sharp move in the yen, which fell 1.8 percent against the dollar over the past three sessions, took some market players by surprise, even though many expected the yen to weaken because of Japan's massive monetary stimulus.

One trigger for the renewed focus in the yen, analysts say, was technical signals. Dollar/yen has clearly broken above its triangle holding pattern since May late last week, prompting onlookers to join the latest yen-selling frenzy.

"We can no longer say the dollar/yen is in a holding pattern," said Teppei Ino, analyst at Bank of Tokyo-Mitsubishi UFJ in Singapore.

Ino said the dollar is likely to target its May peak of 103.74 yen, a break of which is likely to open the way for a test of 105.50 yen, a 61.8 percent retracement of the dollar's 2007-2011 decline from 124.17 to 75.31 yen.

In another positive signal, the dollar clearly broke above Ichimoku cloud on monthly charts for the first time since 2007.

To be sure, the dollar may have risen too far, too fast in the very near term, with its relative strength index reaching 70 percent, a level seen indicating an overbought market.

Yet many traders believe the 70 percent RSI threshold is far from perfect, among them Osamu Takashima, chief FX strategist at Citigroup Global Markets Japan: "Yes generally speaking it is seen as a sign of over-heating. But what we should also bear in mind is that it could also mean that a strong market momentum is building up," he said.

U.S. positioning data published late last week showed currency speculators increased net short positions in the Japanese currency to the most in six years.

Speculators' net yen short positions reached 112,216 contracts, a level only reached in 2006-07 previously, when the yen was under pressure because many speculators borrowed the yen at low interest rates and convert it to higher yielding currencies -- so-called yen carry-trades.

"I suspect the latest rise in speculators' positions reflects their views that yen carry-trades will come back," said Sho Aoyama, senior market analyst at Mizuho Securities.

Expectations of carry trades, which typically emerge when investors' risk appetite is strong, are fuel led by recent rise in world share prices, especially in the developed world.

Wall Street shares hit record highs last week while Japanese shares are within sight of hitting 5-1/2 year highs.

A sharp fall in oil prices on Monday after a nuclear deal was struck with Iran is also seen helping the global economy, further boosting investors' morale, market participants noted. (Editing by Eric Meijer)

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