13 February 2002, 15:47 Midday Europe Forex: Yen Rally Fueled By Mkt Positioning
LONDON (Dow Jones)--The yen is rallying midday Wednesday despite the threat
of another sovereign debt downgrade, with a broad range of market participants
selling dollars and euros for the Japanese currency.
A large U.S. investment house sold dollar/yen down toward Y132.50, where
momentum and technical fund selling triggered more sell-stops, dealers said.
Options and hedging-related plays are keeping the pair in a broad range of
Y131.50-Y135.00, dealers said, although positioning suggests the immediate path
is to the downside.
"The market's still long of dollars, and nothing moves the market like
positioning," said a Japanese bank dealer.
Dollar/yen is expected to fall toward Y131.80, where Japanese names are
expected to come in bidding strongly for dollars, said dealers.
There has been little sign of repatriation flows Wednesday, dealers say, even
though Japanese investors might have been spooked by the downgrade threat into
sending cash back home.
As reported, Moody's Investors Service Inc. threatened to downgrade the
government's debt again, possibly by as much as two notches.
At 1150 GMT Wednesday, the dollar was at Y132.20, a full yen weaker than
Y133.20 seen at the London open Wednesday, and still down from the Y132.63 late
Tuesday in New York.
The euro was also sharply weaker against the yen, trading at Y115.70, down
nearly a full yen from the intraday high, and down from late Tuesday's Y116.30.
The single currency is relatively unchanged against the dollar, having broken
out on the upside initially before retreating.
Euro/dollar has been largely neutralized Wednesday by sterling's moves
against both the dollar and euro, although U.S. retail sales figures for
January at 1330 GMT could provide the single currency with direction.
Encouraging U.K. jobless data at 0930 GMT pushed cable up through technical
resistance at $1.4350, which triggered stop-loss buying up to $1.4365.
As noted, U.K. unemployment posted a surprise fall in January, decreasing by
10,600 on the month.
But a rather gloomy outlook for the U.K. economy in the Bank of England's
Quarterly inflation report an hour later took the shine off sterling, and cable
quickly fell to $1.4320.
The BoE said growth risks remain to the downside, inflation risks to the
upside, and that the ironing out of imbalances in the domestic economy is
likely to see sterling depreciate.
At 1150 GMT, sterling was at $1.4335, compared with $1.4326 at the London
open and $1.4346 late Tuesday in New York.
Euro/sterling was at GBP0.6106, down from GBP0.6120 late Tuesday. Indeed, the
pair is sharply off from Tuesday's intraday high of GBP0.6171.
The dollar was at CHF1.6885, down from CHF1.6930 earlier Wednesday, but up a
little from CHF1.6872 late Tuesday in New York.
Economists surveyed by Dow Jones Newswires expect headline U.S. retail sales
to be 0.2% down on the previous month, with the core (excluding auto sales) up
0.4%.
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