* Euro up by more than one percent vs yen
* Euro uptrend seen intact, traders look to buy on dips
* Euro lifted by above-forecast euro zone services PMI
* Yen hits fresh 2-1/2 year high vs dollar
By Anooja Debnath
LONDON, Feb 5 The euro rebounded on Tuesday,
helped by better-than-expected euro zone data, though analysts
said it could be vulnerable to losses before a European Central
Bank meeting later in the week.
Analysts said the euro had regained some ground from
Monday's sharp sell-off as Middle East investors bought the
common currency on dips, a sign its overall upward trend is
likely to remain intact in coming weeks.
The euro's recent ascent has drawn the attention of European
policymakers. While French President Francois Hollande called on
the euro zone on Tuesday to protect the currency from
"irrational movements", German Economy Minister Philipp Roesler
said countries must focus on boosting competitiveness and not on
cutting the value of their currency.
Though these comments did not have an immediate impact on
euro moves, it was an indication of the growing split among
leaders on the euro's strength and this could check its further
The euro's gains were more pronounced against the yen
. The yen slipped to a 2-1/2 year low against
the dollar as Japanese companies stepped up hedging against
further weakness in the yen amid mounting prospects of further
monetary easing in Japan.
The euro jumped more than 1 percent against the yen to
126.72 yen, edging closer to the 34-month high of 126.97 hit
Against the dollar, the euro was up 0.2 percent on
the day at $1.3556, but still well below a near 15-month high of
$1.3711 struck on Friday. Chart support was seen at $1.3414, a
low hit on January 29.
Investors were wary of taking large positions in favour of
the euro before a ECB meeting on Thursday as there was a risk of
president Mario Draghi talking about the euro's recent strength,
"Draghi will likely refrain from explicitly talking down the
euro but he might try to tone down his outlook for euro zone
growth and inflation. A correction lower in euro/dollar could be
on the cards if we see more profit-taking on euro longs," said
Valentin Marinov, head of European G10 FX strategy at Citi.
"That said I don't see outright shorts being put in place
ahead of the ECB given the risks for potential further gains if
the ECB decides to ignore the euro appreciation for now."
The euro was boosted by euro zone data which showed the
services sector had improved more than expected in January.
The euro had earlier hit a low of $1.3458 as political
uncertainty in Spain, where the prime minister is facing calls
to resign, and in Italy, which holds a general election later
this month, weighed down on the currency.
"There is a correction (in the euro) on bad news out of
Italy and Spain but it's also due to positioning ... The euro
had become technically overbought," said Arne Lohmann Rasmussen,
head of FX research at Danske Bank in Copenhagen.
"The underlying trend is still there, there is still a
recovery (in the euro zone)," he said, adding that Danske Bank
were advising clients to look at establishing new long euro
positions against the dollar and other currencies.
Earlier in the day, Bank of Japan governor Maasaaki
Shirakawa said he would step down on March 19, three weeks
before the official end of his term. He is likely to be replaced
with someone who is amenable to Prime Minister Shinzo Abe's
drive to ease policy aggressively and get Japan out of
The dollar rose to 93.52 yen on trading platform EBS,
and was up 1 percent on the day and breaking through reported
option barriers at 93.50 yen with more barriers reported at 94
yen. It was the highest since mid-2010.
Some traders believe the currency pair is repeating its
trading pattern of recent weeks, where it falls early in the
week and recovers in the latter half.
Strategists said further yen weakness could be checked due
to growing opposition from other countries before a G20 meeting
in Moscow later this month.
"Japan could face a growing backlash about its recent
policies which has produced a sustained yen weakness and given
that euro was the currency that appreciated the most this could
mean the Europeans in particular could complain about the loss
of international competitiveness," added Marinov.