* Dollar/yen retreats from Friday's high after swift rally
* Could fall further if BOJ does not meet expectations
* Euro falls vs dollar ahead of ECB meeting on Thursday
By Anooja Debnath
LONDON, Jan 7 The dollar fell against the yen on
Monday on profit-taking after its swift rise to a 2-1/2 year
high last week but rose against the euro on speculation the
European Central Bank could hint at future rate cuts.
The dollar was down 0.3 percent at 87.87 yen, off
Friday's peak of 88.48 yen on trading platform EBS, which was
its strongest since July 2010. Traders said the dollar could
extend falls if it broke below reported stop loss sell orders at
Expectations of aggressive monetary easing by the Bank of
Japan has seen the dollar rally more than 8 percent versus the
yen since early December. But analysts said investors returning
after the holidays with fresh allocations to make this year were
taking profit on its rapid ascent.
Audrey Childe-Freeman, head of foreign exchange strategy at
BMO Capital Markets said there was a risk the BOJ's actions
might fall short of market forecasts, leading the dollar to
"There is a risk that markets got a little bit carried away
and that we don't see as much as we were hoping for (from the
BOJ) and we see a pullback in dollar/yen."
The BOJ meets on Jan. 21-22. Traders also said the yen found
some support on worries that Japanese mobile operator Softbank
Corp's deal to buy 70 percent of U.S. carrier Sprint
Nextel Corp could run into complications.
The euro fell 0.6 percent to 114.57 yen, moving
away from Wednesday's 18-month high of 115.995 yen. It also
eased 0.3 percent versus the dollar to $1.3038, just
above last week's three-week low of $1.2998.
Analysts said the euro was likely to remain under pressure
as markets refocus on the euro zone's debt crisis and before the
ECB meeting later this week. Any indication of monetary stimulus
or comments on economic weakness could push it lower.
"If the ECB doesn't cut rates we could see a minor uptick in
the euro," said John Hardy, FX strategist at Saxo Bank. "The
bigger risk ... however is if they hint at the possibility of
more easing, which will weigh on the euro."
Strategists said the euro had chart support around $1.2987,
its 55-day moving average, while traders said a reportedly large
options expiry at $1.30 later on Monday could keep the euro
trading close to that level.
Late last week, the dollar gained broadly after Federal
Reserve minutes showing some policymakers considered ending
their bond-buying stimulus as early as this year.
Further comments from two top Fed officials suggested on
Friday the central bank could halt its asset purchases this
Currency speculators became net buyers of the euro for the
first time since August 2011 in the week to Dec. 31, according
to data from the Commodity Futures Trading Commission released
Some analysts said the data suggested the euro had limited
scope for further short-covering rallies as investors cut
previous bets on the euro falling.
"We have seen a peak in the euro's strength. There was
perhaps excessive confidence in the euro as systemic risks in
the euro zone remain," Saxo's Hardy said.
Markets will also look at Spanish and Italian bond auctions
towards the end of the week. Healthy demand could help the euro
gain against the dollar.