Dollar extends gains versus Japan currency as bulls target 80 yen
By William L. Watts, MarketWatch
FRANKFURT (MarketWatch)—The euro edged higher Monday after a local election saw Spanish Prime Minister Mariano Rajoy’s party hang on to power in his home region of Galicia, while the Japanese yen saw added weakness versus rivals after data showed a widening trade gap, leaving the dollar index largely unchanged.
The ICE dollar index DXY -0.10% , which measures the U.S. unit against a basket of six major rivals, slipped to 79.587 from 79.629 in North American trade late Friday.
The euro EURUSD +0.27% changed hands at $1.3044, up from $1.3026.
Results showed Rajoy’s center-right Popular Party retaining control of the regional parliament in Galicia, a vote that had been seen as an important test. As expected, the Basque nationalist party was on track for victory in a Sunday election in the Basque Country.
“The home win was important for Rajoy as it was seen as a mini-referendum on the austerity his government has been forced to introduce. In fact, the Popular Party extended its majority here by three seats,” said Steven Barrow, currency and fixed-income strategist at Standard Bank in London.
Lingering concerns
Strategists at UniCredit Bank in Milan said investor frustration over Spain’s refusal to seek a bailout from the euro-zone rescue fund, which would allow the European Central Bank to implement its aggressive bond-buying program, and worries over Greece will likely remain.
The Galician election results, however, will likely keep a euro selloff at bay, leaving room for the shared currency to continue seesawing around the $1.3050 level.
The dollar fetched 79.64 Japanese yen USDJPY +0.64% , up from 79.31 yen late Friday. The yen saw added pressure after data showed exports dropped by 10.3% in September compared with the year-earlier month, exceeding expectations for a 10% drop.
Imports rose 4.1%, widening the trade gap to 558.6 billion yen ($7 billion) versus a consensus forecast of 547.9 billion yen.
The 80-yen level marks an important psychological target for the dollar, strategists said. From a technical perspective, bulls were encouraged last week as the dollar/yen pair broke out to the upside and cleared horizontal resistance at the 79-yen level, said Matthew Weller, analyst at GFT, in a research note.
While some stochastic indicators are in overbought territory and may foreshadow a modest pullback early this week, buying opportunities will be favored as long as dollar/yen remains above 79 yen for a potential run to the 80 yen level, he said.
The British pound GBPUSD +0.21% traded at $1.6036, up from $1.5999.
The Australian dollar AUDUSD +0.04% fetched $1.0308, a 0.4% decline.
William L. Watts is MarketWatch's European bureau chief, based in Frankfurt.
