TOKYO (AFX-ASIA) - The euro/yen was weak in midmorning, testing the 109 yen level on technical position adjustments ahead of expected interest rate moves in the US and Europe, dealers said. Standard & Poor's MMS managing analyst Hideki Naito said the euro was weak on technical position adjustments ahead of the interest-rate decisions by the US Federal Reserve and the European Central Bank. "The euro is extending its slump, mainly on position adjustments. The CME's last report showed over-extended euro-long and yen-short positions," Naito said, refering to Chicago Mercantile Exchange data. "There are also some small euro/yen offer flows. The euro is struggling to find a base at 109 yen, with some stop losses below there," he added, noting that a breach of these positions would lead to further euro/yen selling. The euro appears to have some support at the low 89 cent levels, where bids may appear, "so the overnight low of 0.8945" should hold, he said. The European currency's fundamentals have also been weakened by hawkish comments overnight from Bundesbank president Ernst Welteke, who warned that the ECB might boost liquidity too much. "Last week the market thought (a 25 basis point rate cut) should be 50-50 but after Welteke's comments it should be less," Naito said. In contrast, probably around two thirds of market participants expect the US Fed to cut rates by a further 50 basis points this week, he added, which has helped to support the US stockmarket and therefore the dollar. However, the market is evenly split between those who see further dollar gains, after its recent consolidation, and those who believe the optimistic view of a V-shaped economic recovery will again be disappointed. "Over the last several days the US numbers were miserable but the reaction was small because the US stockmarket was holding on to its base," he said, adding though that there is concern the equity market will test its lows again. "Once the US stockmarket climbs down again, then the view on the dollar will change," Naito said, adding that the dollar/yen could start to see larger moves after an extremely low level of volatility in recent sessions. The dollar's core range in the meantime remains around 121.50-122.00 yen. Nikko Trust and Banking forex manager Yasuji Yamanaka said the dollar continues to test lower against the yen, adding that he expects any dollar rebound to be "very limited". "Yesterday we saw the 122.10-15 yen level, but after that, the dollar declined to 121.60, and even today still there is some selling interest around 121.70-80," he said. "Maybe below 121.50, there is still some buying interest, and above 122.00 maybe there is some selling interest, so it's difficult to move out of that range just ahead of the FOMC meeting," Yamanaka said. "People realize that the figures out of the United States are quite bad, and with these fundamentals, it's very difficult to buy up from here. So maybe people will try to sell on rallies, rather than buy on dips," he added. "If dollar/yen breaks 121 and it goes below 121, it will be difficult to push it down further."