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Forex - EUR/JPY retreats as ECB bond-buying optimism fades

Published 08/08/2011, 06:39 AM
Updated 08/08/2011, 06:39 AM

Investing.com – The euro turned lower against the yen on Monday, retreating from a two-day high as optimism faded over news that the European Central Bank was buying Italian and Spanish bonds, while a downgrade of U.S. government debt drove investors to safe haven assets.

EUR/JPY pulled back from 112.66, the pair’s highest since August 4, to hit 110.82 during early European trade, dropping 1.05% on the day.

The pair was likely to find support at 109.05, the low of August 3 and short-term resistance at 112.66, the daily high.

The euro was higher earlier after the ECB said in a statement late Sunday that it “will actively implement” its bond-buying program, indicating that it will likely buy Spanish and Italian government bonds.

However, optimism over the news faded and market focus turned to last Friday’s historic downgrade of U.S. sovereign debt by one notch to AA+ by ratings agency Standard & Poor’s.

The ratings agency kept the U.S. rating outlook at negative, suggesting a further downgrade could be possible within the next 12 to 18 months.

Meanwhile, Japanese Finance Minister Yoshihiko Noda signaled that the country was ready to continue intervening in currency markets to stem the yen’s strength, saying that he “will continue to carefully monitor market moves”.

But rating agency Moody's warned that Tokyo's efforts to weaken the yen were ineffective and negative for its sovereign ratings.

Last Thursday, Japan intervened to curb the yen’s gains for the first time since March. In addition, the BOJ announced additional monetary easing to further bolster growth, pledging to buy more assets such as stocks and bonds.

The euro was also lower against the Swiss franc, with EUR/CHF slumping 0.83% to hit 1.0867.

Leaders from the Group of Seven leading economies said Sunday that they were ready to take every action necessary to stabilize financial markets.

"We are committed to taking coordinated action where needed, to ensuring liquidity, and to supporting financial market functioning, financial stability and economic growth," the G-7 said in a statement.

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