March 13, 2012 / 9:20 AM / 6 years ago

FOREX-Dollar at 11-mth high vs yen, brighter outlook helps

* Fed seen unlikely to offer new stimulus hint

* Brighter US economic outlook helps dollar

* German ZEW survey likely to sway euro

By Anirban Nag

LONDON, March 13 (Reuters) - The dollar hit a 11-month high against the yen and hovered near a seven-week high versus a basket of currencies on Tuesday, supported by expectations that a U.S. economic revival will keep the Federal Reserve from resorting to fresh stimulus.

The dollar recouped losses against the yen made after the Bank of Japan stopped short of taking aggressive easing steps on Tuesday. That wrongfooted investors who had bet on a repeat of the central bank’s surprise easing last month.

The dollar index stood at 79.981, not far from a high of 80.132 struck on Monday, its highest in seven weeks. Analysts say with the Fed unlikely to be in a hurry to announce fresh measures, given Operation Twist is in play, the focus would be on retail sales for February.

The data is expected to reflect solid auto and gasoline sales and is likely to push the dollar higher, especially against the yen, with the pair likely to test the 83 yen level.

“There is an upside risk to U.S. retail sales data, given the underperformance seen last month,” said Steve Barrow, head of G10 currency research at Standard Bank. “That should give reasonable support to the dollar against the yen and could see it rise well above 82.50 yen towards recent highs.”

He said strong retail sales out of the U.S., as well as a good German ZEW sentiment survey, would combine to support stocks and growth-linked currencies like the Australian and New Zealand currencies.

The dollar rose to 82.72 yen, up 0.5 percent from levels in late U.S. trade as stop losses above its previous high of 82.65 were triggered. Traders reported option barriers at 82.75 and 83 yen levels that could limit the dollar’s rise, for now.

Many though, expect more gains in the dollar, with one near-term target seen at 83.11 yen, a 76.4 percent retracement of the dollar’s decline from April to a record low in October last year. The yen’s losses have gathered pace since the surprise BoJ easing and there were some expectations it might have acted again on Tuesday.

“Some players were speculating that the BOJ might take additional steps so the result should be a bit of disappointment for yen bears. But then again, today’s decision is not something that can reverse the yen’s fall,” said Osamu Takashima, chief FX strategist at Citibank in Tokyo.

Another constant source of yen-selling these days is overseas M&A deals and investment. Many Japanese companies are seeking to enter foreign markets to offset a shrinking domestic one as Japan’s population declines.

While there could be some profit-taking in the dollar ahead of the Fed’s announcement at 1815 GMT, the greenback is likely to be supported by signs of improvement in the world’s biggest economy. Data last Friday showed February was the third straight month in which there was a gain of more than 200,000 jobs.

LIFE AFTER GREECE

The dollar’s strength saw the euro ease and move closer towards a one-month low struck on Monday. The common currency is still smarting from fears that the European debt crisis could worsen, despite Greece’s success in securing a debt-cutting swap deal.

The euro stood at $1.3135, not far from a one-month low of $1.3079. Technical support for the euro is at its Ichimoku cloud top at $1.3087 and a 55-day moving average around $1.3084.

Westpac strategists said they have entered a short euro/dollar trade. They have sold euros at $1.3180 and would look to sell more into a rally to $1.3350.

That recommendation came as the currency’s outlook remained shaky given that the euro zone economy is slipping into recession, in contrast to a brightening picture in the U.S.

While the euro is supported by relief after Greece successfully swapped most of its privately-held bonds and cut its debt by more than 100 billion euros, many market players are concerned that other peripheral countries like Portugal may suffer a similar fate.

Only Germany looks set to continue to stand out as the one of the few beacons of growth in Europe with the latest ZEW economic sentiment index for March set to build on last months surprise improvement.

The Australian dollar bounced back after hitting a seven-week low of $1.0475 on Monday, to trade at $1.0523. While its latest rebound could open the way for a test of resistance around $1.0670, the currency is for now stalling at $1.0545 , capped by its 55-day moving average around $1.0555.

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