TOKYO (AFX-ASIA) - The euro tested upside resistance against the dollar in midmorning trade, attempting to maintain the key psychological level of 88 cents, dealers said.
They said a series of factors have shifted positive sentiment away from the dollar, including concerns the US may back down from its strong-dollar policy, despite repeated denials by senior officials that anything has changed.
Economic difficulties in South America have also hit the currency, as have expectations that US earnings will see a weak recovery at best and recent cautious comments from Federal Reserve chairman Alan Greenspan.
However, uncertainty among local players ahead of tomorrow's US GDP data, as well as Japan's Upper House election on Sunday, helped keep major crosses tightly held.
Sanwa Bank foreign exchange vice president Satoshi Tate said major players are apparently aiming to reduce their exposure to dollar assets as they perceive a major shift in sentiment in favour of the euro.
"There are big moves trying to get out of US dollars against the euro," he said. "The dollar has been sold on the fact that many corporates are pessimistic over earnings, the South America problems and Greenspan's comments."
The euro could target a level of 92 cents if it manages to breach the 88 level, creating a new range of around 87-92 cents, Tate said. Further gains in the euro in Asian trade depend somewhat on the yen, with weakness in the Japanese unit previously helping to support the dollar against other currencies.
"If the dollar/yen stays around here, then the euro will have some energy to push higher," Tate said, adding that gains in the euro above the 109 yen would also help it higher against the dollar.
"We saw some big amount of selling at 109 yen from exporters yesterday," he said, adding that this could cap the euro/yen for the time being.
"On the yen-side, the election and GDP are coming," restraining major moves, he added.