The dollar edged higher versus the yen on position squaring on Monday, having slipped earlier as data showed Japan's economy grew at a slower-than-expected pace in the second-quarter, prompting investors to trim their exposure to risk. The dollar rose 0.3 percent to 96.54 yen by early afternoon, pulling away from a seven-week low of 95.81 yen set last Thursday. It set an intraday low of 95.97 yen earlier in the session after data showed Japan's economy grew an annualized 2.6 percent in April-June, a third straight quarter of expansion but slower than expected. The greenback later bounced back on position squaring, however, after running into bids near the 96.00 yen level. "The dollar is starting to show some firmness on the downside, at levels below 96.00 yen," said a trader for a Japanese bank in Singapore. Market players said the near-term outlook for the dollar against the yen will hinge on U.S. economic data due this week, such as retail sales coming up on Tuesday, as well as moves in Tokyo share prices. The yen could be headed for further gains if Tokyo shares continue to weaken after the disappointing GDP data, said Satoshi Okagawa, senior global markets analyst for Sumitomo Mitsui Banking Corporation in Singapore. "If share prices slide, the 95 yen level (for the dollar) is right around the corner," Okagawa said. The yen has shown a strong inverse correlation to Japanese shares in recent weeks and market players noted that speculators have taken recent sharp falls in the Nikkei .N225 as a signal to buy the currency. The yen, a traditional safe haven currency, usually attracts good buying interest in times of market stress. Dollar buying interest at levels below 96.00 yen may support the greenback versus the yen in the near term, said Jeffrey Halley, FX trader for Saxo Capital Markets in Singapore. "We filled a lot of bids in dollar/yen...each side of 96.00 and the street obviously have them as well," Halley said. "I still expect dollar/yen to resolve to the downside this week. But for today the street has a definite bias to (dollar) bids in good size under 96.00, so it will be slow going," he added. Elsewhere, the euro eased 0.1 percent versus the dollar to about $1.3325. The euro took a brief spill to $1.3313 earlier in the session after Der Spiegel reported on Sunday the Bundesbank was warning that Greece would need more financial assistance by early next year. Against a basket of currencies, the dollar inched up 0.1 percent to 81.231 .DXY, but was still not far from last week's seven-week trough at 80.868. "A key focus is on the DXY as the decline approaches the important 80.50/88 support zone," said analysts at JPMorgan. "This area includes the August '11 uptrend line and June low." "Given the importance of these levels and the oversold and diverging momentum setup, some pause/retracement seems close." Dealers noted positioning in the market had also become more favorable to consolidation as speculators had pared their bets in favor of the dollar for a third straight week. The value of the dollar's net long position fell to $21.62 billion in the week ended August 6 from $24.45 billion. Source : Reuters
