* Yen falls to 7-month low versus dollar of 80.30 yen
* Dollar resistance around 80.40 yen seen as key
* Euro zone services PMI disappoints, Greece concerns persist
By Nia Williams
LONDON, Feb 22 (Reuters) - The yen hit a seven-month low against the dollar on Wednesday and looked set to remain on the defensive after recent monetary easing from the Bank of Japan, while the euro struggled to make headway against the greenback following Greece’s bailout deal.
The euro also came under pressure from a euro zone services sector flash PMI survey that fell more than expected to 49.4, below the 50 level that signifies contraction, raising concerns the region may slide into recession.
The dollar hit a session peak of 80.30 yen, its highest level since mid-July with traders citing buying by Japanese importers and offshore players.
The yen has been under pressure since the BoJ’s surprise move to boost its asset buying programme last week. Some analysts said the move could mark the end of the yen’s long-term uptrend that prompted Japanese authorities to intervene in the currency market three times last year.
Comments from a Japanese Ministry of Finance official, that market speculation which could contribute to the yen’s rise was persisting and Japan would respond appropriately, added to broad yen weakness.
The euro rose to a three-month peak against the Japanese currency of 106.33, its highest since mid-November.
“The initial rebound in our view is a position adjustment following the BoJ’s announcement of their shift in policy,” said Ian Stannard, head of European FX strategy at Morgan Stanley.
“The sustainability of that move is a function of whether we see a change in the behaviour of Japanese investors. A rise in U.S. rate expectations would be a trigger point for another sharp move higher.”
The dollar has risen roughly 5 percent against the yen so far in February, putting it on track for its biggest monthly percentage gain since March 2010. Further gains could be slow, with exporters looking to sell into a stronger dollar.
Resistance was seen around 80.40 yen, the July 12 high. Morgan Stanley recommended selling the dollar at 80.40, targeting 77.75, but with a tight stop loss order at 80.65 yen.
“I am still slightly hesitant at the moment but if we start to move above that level we will probably switch to bullish strategies,” said Stannard.
In addition to the BOJ’s monetary easing, the yen has come under pressure this month after data showed that Japan’s current account surplus — a major and constant support for the yen — fell to a 15-year low last year. Bank of Tokyo-Mitsubishi analysts said in a note Japan’s terms of trade were also deteriorating as a result the rising price of Brent oil.
The euro retreated from near two-week highs hit against the dollar the previous day as optimism over the long-awaited Greek bailout deal reached early on Tuesday gave way to concerns about economic growth and implementation risks.
The euro was down 0.1 percent at $1.3226, from Tuesday’s high of $1.3293, its highest level since Feb. 9. It faces resistance at $1.3306, the 100-day moving average.
Since late January the euro has traded in a range roughly between $1.30 and $1.33 and analysts said it would take a significant set back in the Greek deal for a break this week.
Market attention was also focused on the European Central Bank’s next long-term refinancing operation next week. The ECB is expected to lend nearly 500 billion euros to banks, although some forecasts were as high as 1 trillion euros.
“If the take-up is higher I think the euro goes up on that, it plays on more liquidity being positive for risk appetite. We could see it the other side of $1.35, “ said Adam Cole, global head of FX at RBC Capital Markets.
“But there’s an equally large camp that believes LTROs are close enough to quantitative easing to be more currency negative the larger they are.”