* Euro back in favour after selloff early in the week
* Commodity currencies also firmer as sentiment recovers
* Demand of higher yields persists, yen reverses course
* Japan trade surplus below expectations; weighs on yen
By Ian Chua and Masayuki Kitano
SYDNEY/SINGAPORE, April 20 (Reuters) - The euro and
commodity currencies such as the Australian dollar rebounded on
Wednesday, as investors bought them again after a mild shake-out
of stretched long positions at the start of the week.
Gains in U.S. and European shares on upbeat corporate
results helped soothe market sentiment after nerves were rattled
on Monday by S&P's warning on U.S. credit ratings and on fears
that Greece will have to restructure its debt.
While those problems remain unresolved, the moves showed
investors continue to favour higher-yielding currencies at the
expense of the dollar and yen, and a rise in Asian equities
underscored a rebound in risk-taking sentiment.
"The fact that there was little emotional reaction after the
S&P move perhaps helped to improve investors' sentiment towards
risk," said Makoto Noji, senior strategist at SMBC Nikko
Securities in Tokyo.
The yen got no help from data showing that Japan logged a
smaller-than-expected trade surplus in March and that exports
fell more than expected year-on-year, in a sign of the
disruptions caused by a massive earthquake and tsunami that
struck Japan's northeast on March 11. []
"There is little doubt that this is a factor for the yen to
weaken," said Daisuke Karakama, market economist for Mizuho
Corporate Bank in Tokyo.
The data showed that car exports fell, likely due to
disruptions to manufacturing supply chains, while imports of
oil-related products rose on the back of high commodity prices,
he said, adding that this trend may continue in April and May.
"Two factors that had supported yen strength until now are
shrinking U.S.-Japan interest rate differentials and exporter
flows. Today's data shows that one of those is weakening,"
Karakama added.
The dollar rose 0.4 percent from late U.S. trade on Tuesday
to 82.91 yen . Dollar-buying by Japanese importers helped
lend the dollar support against the yen, traders said.
The euro climbed 0.8 percent to 119.27 yen
, pulling away from a two-week trough of 116.49 yen
hit on EBS earlier this week.
The euro rose 0.4 percent versus the dollar to $1.4387
, having clawed above short-term resistance around the
$1.4365/80 area. Both the euro's 100-hour moving average and the
61.8 percent retracement of its recent $1.4521 to $1.4156 slide
both lie near that region.
On hourly charts, one possible upside target for the euro
lies at its 200-hour moving average that now lies near $1.4409.
BETTER RE-ENTRY LEVELS
Samarjit Shankar, analyst at BNY Mellon, said the bank's
flow indicators showed the euro was the strongest net bought
currency among the G10 as its decline earlier this week gave the
market better re-entry levels.
Data highlighting business activity in Germany and France
continued to outpace the rest of the common currency bloc kept
alive rate hike expectations by the European Central Bank.
"This has also buoyed the single currency despite the
lingering sovereign debt crisis in the region's peripheral
markets," Shankar added.
The dollar dipped 0.1 percent against a basket of currencies
to 74.918 , falling back in the direction of a 16-month
trough of 74.617 set last week.
As the dollar's value falls, the price of gold hit a
record high above $1,500 and silver rose to a 31-year
high.
With the U.S. Federal Reserve and Bank of Japan keeping
monetary policy ultra-loose, both the yen and dollar remain the
funding currencies of choice in carry trades.
Market players say macro hedge funds have been using options
recently to take medium-term bets against the yen, both in
dollar/yen and in the South Korean won versus the yen
.
In a sign that market players see limited potential for a
further fall in the dollar, dollar/yen put options were sold
while there were limited offers in dollar/yen calls on
Wednesday, said an options trader at a European bank.
One focal point for the yen is whether Japanese investors
will step up their investment in overseas assets in the new
fiscal year that started this month, and there are signs that
some are heading in that direction.
Japan's third-largest private life insurer, Meiji Yasuda
Life, said on Tuesday it plans to increase its investment in
foreign bonds, focusing on dollar debt, with its confidence in
U.S. Treasuries unshaken by the threat of a credit downgrade.
The chase for yields continues to benefit the Australian
dollar, which hit a fresh 29-year high of $1.0599 .
(Additional reporting by Eric Burroughs and Hideyuki Sano in
Tokyo, Reuters FX analyst Krishna Kumar in Sydney)
