Yen weakens versus euro amid Bank of Japan stimulus speculation

Trade Tensions

“If the tensions between China and Japan get worse, that reduces trade prospects for Japan, which should soften the yen a little more,” Paul Christopher, the St. Louis-based chief international strategist at Wells Fargo Advisors, said in an interview on Bloomberg Television’s “Lunch Money” with Adam Johnson. “We see the euro coming back down to the $1.20, $1.25 area. We think it’s overdone.”

The euro’s 14-day relative strength index versus the dollar and the yen remained above 70 today. A reading above 70 indicates an asset may have rallied too far, too quickly and is due for a correction.

Gains in the shared currency were tempered as Spanish 10- year bonds extended a decline, pushing the yield up 19 basis points to 5.97 percent.

“Spanish yields may push higher until it is clear that Spain is officially asking for aid,” said Aroop Chatterjee, a currency strategist at Barclays Plc in New York. “ The ECB has acted but there’s more to come down the road. This will continue to keep any euro gains muted. We prefer to sell the dollar versus riskier currencies rather than the euro.”

Spain’s Debt

The euro declined against the dollar as Spanish Prime Minister Mariano Rajoy considered whether to request economic assistance for the indebted nation. Rajoy’s government will unveil additional austerity measures by the end of the month based on recommendations made in July, including a possible increase in the retirement age, shifting from labor to consumption taxes and deregulating closed professions, according to European officials. Demonstrations two days ago in Madrid against fiscal cuts underpinned the political balancing act Rajoy faces.

Since July 26, when ECB President Mario Draghi said he would do “whatever it takes” to save the 17-nation euro, the currency has appreciated versus each of its 16 major counterparts tracked by Bloomberg.

Brazil’s real was the biggest loser among the dollar’s 16 most-traded counterparts tracked by Bloomberg after the central bank sold reverse currency swaps for the fourth time in four days. Finance Minister Guido Mantega reiterated in a newspaper interview that the government won’t let the real strengthen.

The real fell 0.9 percent to 2.0293 per dollar.

The Dollar Index gained 0.2 percent to 79.013, after weakening to the lowest since February last week.

The index, which IntercontinentalExchange Inc. uses to track the greenback against those of six U.S. trading partners, may pause its decline this week as it’s entering an “important” support zone, Niall O’Connor, a New York-based technical analyst at JPMorgan Chase & Co, wrote yesterday in a research note to clients. This area includes the 78.398 level that is the 50 percent retracement of its rise from 72.696 on May 4, 2011, to 84.100 on July 24, according to O’Connor. It also includes the May 1 low of 78.603.

Bloomberg News

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