SYDNEY/TOKYO: The Japanese yen slid to a nine-month low against the dollar on Monday as the break of a key chart level triggered stop-loss selling, while the euro held firm ahead of a fresh injection of liquidity by the European Central Bank.
The Japanese currency has retreated in recent weeks following a surprise easing by the Bank of Japan, a fall in the country's current account surplus and a rise in short-term US bond yields.
The dollar hit 81.661 yen in early Asian trade on Monday, a gain of more than 7 percent since the start of month, as buying accelerated after it broke above major resistance at 80.94 on Friday. Buying from Japanese exporters and short-covering by speculators later pushed it back to around 81.23.
Chartists saw the break as a major bull sign as it was the first time since 2007 that the dollar closed above that level on the Ichimoku cloud, suggesting the dollar's long decline since 2007 may be coming to an end.
Yet some market players still think it is premature to make that call.
"The dollar/yen appears to be coming close to a peak. The latest fall in the yen has been primarily driven by a fall in short-term Japanese bond yields but there's limited room left for them to fall," said Hideki Amikura, forex manager at Nomura Trust.
The spectre of dovish policy by the US Federal Reserve could limit the dollar's gains, others said.
The euro climbed to 109.915 yen, the highest since Oct. 31, before ceding much of gains to trade at 109.14 yen.
CHEAP FUNDING
Against the dollar, the single currency stood at $1.3455 , not far off the 2-1/2 month high of $1.3486 set on Friday.
The European Central Bank (ECB) will this week offer, for the second time, an unlimited volume of cheap three-year loans to European banks.
A Reuters poll of economists shows that banks will take 492 billion euros, close to the 489 billion borrowed in the first deal just before Christmas.
"Interpreting the outcome will be difficult though as a high number could be seen as good in the sense that banks may be raising cheap money to lend, or bad in the sense that they are dependent on the ECB for funding," said Shane Oliver, head of investment strategy at AMP Capital Investors.
"Regardless of the outcome, the very existence of cheap ECB funds for 3 years has substantially reduced the risks around the European banking system," he added.
That has bought European officials time to solve the debt crisis, analysts said. Progress was made earlier this month when finance ministers agreed to a second bailout for Greece.
But hurdles remained and one of them was highlighted by the weekend meeting of the Group of 20 leading economies. European members were told they must put up extra money to fight the debt crisis in return for more help from the rest of the world, putting pressure on Germany to drop its opposition to a bigger European bailout.
The resilience of the euro saw the dollar flounder at 2-1/2 month lows against a basket of major currencies. The dollar index was at 78.43, not far off Friday's trough at 78.220. Commodity currencies have gone nowhere against the US dollar since their rally fizzled earlier in the month, with some traders pointing to growing worries about global growth as oil prices soared.
The Australian dollar stood at $1.0680, a touch below its $1.0698 late in New York on Friday. Since hitting a six-month peak of $1.0845 on Feb. 8, the Aussie has been drifting sideways.
Against the broadly weaker yen though, the Aussie hit 87.42 , the highest since early July, a gain of 7.7 percent so far this month.
Markets ignored a leadership battle in Australia's minority government. Prime Minister Julia Gillard soundly defeated a challenge from party rival and Kevin Rudd in Monday's leadership vote.
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