* Euro edges lower from 7-mth high vs yen
* Markets hopeful of an aid deal for Greece later today
* Resumption of U.S. fiscal cliff talks also eyed
By Philip Baillie
LONDON, Nov 26 The euro retreated from a
seven-month high against the yen on Monday as traders booked
profits on its recent rally, although expectations that Greece
was on the verge of securing new emergency loans were checking
Euro zone finance ministers meet on Monday for the third
time in as many weeks to hammer out a deal to get international
lenders to release aid to Greece in time for debt repayments due
German Chancellor Angela Merkel has said that she was
confident a deal could be reached, while the French finance
minister said on Sunday an agreement was close.
A deal could give the euro a fillip, especially against the
struggling yen which has been under pressure in the past few
weeks on mounting speculation that a new government after next
month's general elections will force the Bank of Japan to ease
monetary policy aggressively.
The euro was down 0.4 percent on the day at 106.60 yen
, having hit 107.135 yen on trading platform EBS in
Asian trade, the single currency's strongest level since late
April. It has risen nearly 4.5 percent in the past two weeks as
investors and speculators added positions and sold the yen.
Against the dollar, the euro was flat at $1.2975,
having hit $1.2991 on Friday, its highest since late October.
The dollar was weaker against the yen at 82.15 yen,
with some investors unwinding long positions betting on dollar
gains that have been built in recent weeks. There was talk of
persistent buying from hedge funds for dollar/yen call options
that expire in three to six months, suggesting they are bullish
on the dollar and bearish toward the yen.
"The market has been quite long euro/yen so it is quite
natural that dollar/yen has had a bit of a pullback where
euro/yen has done the same," said Daragh Maher, currency
strategist at HSBC.
"I don't think there is any conviction in selling the euro
as you may have some kind of announcement on Greece, which will
probably see a pop higher."
Expectations of a deal for Greece overshadowed an election
victory for separatists in the Spanish region of Catalonia on
The win raised some concerns over the potential negative
impact on the Spanish economy and the country's finances as
Catalonia makes up 20 percent of the economy and provides most
tax revenue to the central government.
But HSBC's Maher said Greece was the main concern and with
no sign of a referendum on independence in Spain for the next
year at least, the euro was likely to retain its recent gains.
The dollar index was flat at 80.215, hovering close
to a three-week trough of 80.128 plumbed on Friday as some
speculators cut bets in favour of the U.S. currency. Net long
positions in the dollar rose to $4.72 billion in the week ended
Nov. 13 from $1.296 billion the previous week.
Traders said budget talks in the United States would hold
sway for the dollar in the near term.
The White House and Congress are set to resume negotiations
this week to avoid $600 billion of automatic tax hikes and
spending cuts in January that are known as the 'fiscal cliff'.
Analysts fear if those are allowed to kick in, they could tip
the world's biggest economy into recession.
"We see a stop gap solution coming through by the end of the
year (on the fiscal cliff)," said Geoffrey Yu, currency
strategist at UBS.
"We see a stronger dollar, a resolution clears a major event
risk and probably means cuts will not be aggressive either which
would support U.S. yields because of increased confidence in
UBS's Yu added a swift resolution on the U.S. fiscal cliff
and a Greek aid deal could help lift riskier currencies although
it would not be as much of a market-moving event as similar
talks last year on the U.S. debt ceiling.
The growth-linked Australian dollar was trading
steady at $1.0455, not far from Friday's three-week high of