USD Ends Rally and Declines while the JPY on BOJ Check

By: Hillel Fuld

A wave of short Dollar positions triggered by concerns over the US and global economies on Wednesday led to the USD’s biggest daily gain in nearly two years. That gain reversed itself on Thursday with the greenback declining.

After Japan checked exchange rates with backs early Thursday, the US currency increased n value against the Yen reaching the day’s high of 85.50, a rebound from a 15 year low..

"The talk of the BOJ rate checking prompted players to cover short dollar positions, although bearish sentiment persists for the dollar," said an FX trader at a leading Japanese brokerage.

The USD fell as low as 84.72 JPY on trading platform EBS on Wednesday, when it took out option barriers around 85.00 yen and a November low of 84.82 yen. The currency's slide was fuelled by a narrowing spread between U.S. and Japanded government bond yields.

Two-year Treasury yields fell to a new all-time low on Wednesday a day after the Federal Reserve announced a plan to reinvest the money from maturing mortgage bonds in government debt to help its economy.

The EUR increased 0.4 percent to $1.2913  as some players bought back the currency after it dropped more than 2 percent versus the dollar on Wednesday as investors reduced risky positions.

A rise in EUR/JPY also supported the single European currency against the dollar, traders said.

Versus the JPY, the euro was up 0.3 percent at 110.07 yen EURJPY=R after hitting a one-month low of 109.24 yen in early Asian trade.

The dollar index, a gauge of the greenback's performance against six major currencies, was down 0.1 percent on the day at 82.202 .DXY, but well above its 200-day moving average, now at 80.898.

On Wednesday, the dollar index increased 2 percent for its largest one day rise since October 2008.

The dollar index might have finally reversed its trend after steadily sliding in the past two months, traders said.

It now has immediate support around the 81.53-81.60 region. A rise beyond a July 21 high of 83.45 would confirm it reached its lowest point.