* Yen moves away from lows as investors take profits
* Dollar retreats despite positive data on Thursday
* Euro extends slide after second-half rally
By Laurence Fletcher
LONDON, Jan 3 The yen rose on Friday as
investors shunned risk and took profits after rallies in the
dollar and the euro, helping the Japanese currency move away
from recent five-year lows.
The dollar fell 0.4 percent to 104.33 yen, down more
than a full yen from a five-year high of 105.45 yen set on
Traders said there had been some stop-loss dollar offers at
levels between 104.50 and 104.30 yen. Moves can also be larger
when volumes are thin, with Japanese market players not back
from their New Year holidays until next week.
The euro, the top-performing major currency of 2013, shed
0.6 percent to 142.37 yen, extending its losses in
the wake of its 1.2 percent slide the previous day. The single
currency pulled away from a five-year peak of 145.675 yen set
Investors tend to flock to the yen in times of market
stress. Asian shares outside Japan shed 1
percent as a slower China services survey prompted some caution
but European markets made small gains and analysts said thin
trade was making currencies more volatile.
The 10-year U.S. Treasury yield also dipped back
to levels below 3 percent, offering less support to the dollar.
"January is a bit of a messy month for foreign exchange,"
said Simon Smith, head of research at FxPro. "Volumes are still
thin ... Things are very much driven by flows.
"I don't think the yen is a one-way bet in 2014. The easy
wins have been had. Always the most run-over people in the
markets are yen bears."
Smith expects dollar/yen to end the year at 109 yen per
Betting on the dollar against the yen has been a big trade
for hedge funds and other investors over the past year, who see
the Bank of Japan's ultra-loose monetary policy and potential
for more stimulus this year as one of the clearer themes in
tricky currency markets.
Data on currency futures positions on the Chicago Mercantile
Exchange shows that currency speculators had increased their net
short position in the yen to 143,822 contracts in the week ended
Dec. 24, the largest since July 2007 and up from 62,395
contracts in late October.
"I think the yen's strength over the past couple of days can
be attributed to profit-taking, with the moves exacerbated by
lower liquidity due to the holidays in Japan," said Fawad
Razaqzada, technical analyst at FOREX.com.
"The fact that the dollar/yen pair formed a mini double-top
pattern at 105.40 (yen), just shy of the 61.8 percent Fibonacci
retracement level of the 2007-11 downswing, suggests the move
was indeed technically driven."
The dollar index was down 0.1 percent at 80.567,
having hit a two-week high on Thursday as a slew of generally
positive U.S. economic data reinforced expectations the Federal
Reserve will continue to move away from its bond purchases.
The euro hit a two-week low against the dollar of
$1.36285 and was last at $1.3652, down 0.1 percent.
The single currency - whose second-half rally was driven by
factors such as euro zone banks repatriating funds to shore up
their capital bases and repaying cheap loans to the ECB - has
retreated from a two-year high of $1.3894 touched last Friday.
Marshall Gittler, head of global FX strategy at IronFX
Global, said 2014 had begun with last year's trends reversing.
"Looking at the G10 currencies, most of the movement was
mean reversion: the currencies that gained in December lost, and
those that lost, notably the yen, gained," he said.
The Australian dollar, a favourite short for hedge funds
last year, jumped 1 percent against the dollar to $0.8988
with some funds now looking to take profits, although
it stopped just short of breaking through the $0.90 level. The
New Zealand dollar was 1.3 percent higher at $0.8290.