--Yen slides to new seven-month lows against euro, dollar
--Euro trades firm despite weak business activity readings
--Polish central bank minutes, South African rate decision to come
By Eva Szalay
The dollar rose to a new seven-month high against the yen but lost ground to the euro during European trading hours Thursday as encouraging data from China improved the world's global economic outlook and news of a truce in the Gaza Strip gave investor sentiment a boost.
The yen's slide allowed the dollar to rise to as high as Y82.84 compared with Y82.52 late Wednesday in New York--its strongest level since April 4. The euro also firmed against the Japanese currency to trade as high as Y106.585 from the Y105.87 the night before, and rose to as high as $1.2884 against the buck.
The yen has traded with a sharply weaker tone in recent sessions as expectations build for aggressive monetary easing from the Bank of Japan next year after snap Japanese parliamentary elections were called for Dec. 16. The opposition Liberal Democratic Party is riding high in the polls and favors stronger action to weaken the yen.
"Weakening the yen appears to be one of the main priorities for the LDP party with leader Shinzo Abe having already achieved some success by managing investor expectations through rhetoric," said Lee Hardman, a currency strategist at Bank of Tokyo-Mitsubishi UFJ in a note to clients.
Mr. Hardman noted that yen in trade-weighted terms has fallen around 3.0% over the last couple of weeks.
Aside from against the yen, the dollar was broadly weaker after preliminary data showed Chinese manufacturing activity was expanding in November for the first time in 13 months, encouraging traders to buy riskier currencies.
That prompted a reaction from some official quarters in Asian trading, with the central bank of South Korea thought to be intervening in currency markets to weaken the won, according to traders.
The euro traded with a firm tone as hopes grew that a meeting of euro-zone finance ministers Monday would be able to resolve the latest chapter in the fraught Greek debt saga, and as the deadly fighting between Israel and Hamas in the Gaza Strip eased after a ceasefire was agreed.
The single currency was also buoyed by a successful sale of bonds by Spain, which has already completed its planned debt financing for 2012.
"Spain is not having any problems securing its funding from markets at the moment, even though the price it has to pay for the funding remains rather high considering the economic situation," said Jan von Gerich, chief strategist at Nordea.
A raft of purchasing managers' indexes from Europe printed largely in line with expectations and caused only a muted reaction in currency markets. The composite euro-zone PMI remained in contraction territory for a tenth month in a row, although November's 45.8 print was slightly improved from 45.7 in October.
Investors will be closely watching for any headlines as a result of a summit of European Union leaders in Brussels today and Friday, where leaders will discuss the bloc's spending plans for next year.
In emerging markets, traders will be watching the South African central bank's rate decision, starting at 1300 GMT and the minutes from the Polish central bank's November meeting, where the bank cut its base rate by 25 basis points to 4.5%.
At 1147 GMT, the euro was trading at $1.2880 against the dollar, compared with $1.2830 late Wednesday in New York, according to trading system EBS. Meanwhile, the pound was trading at $1.5956 against the dollar, compared with $1.5951 late Wednesday in New York.
The Wall Street Journal Dollar Index, which tracks the dollar against a basket of currencies, was trading at 70.752, compared with 70.875 late Wednesday in New York.
A summary of key levels for chart-watching technical strategists is below:
Forex spot: EUR/USD USD/JPY GBP/USD USD/CHF
Spot 1056 GMT 1.2861 82.65 1.5948 0.9366
3 Day Trend Bullish Bullish Bullish Bearish
Weekly Trend Range Bullish Bearish Bearish
200 day ma 1.2864 79.30 1.5884 0.9395
3rd Resistance 1.3021 83.31 1.6091 0.9457
2nd Resistance 1.2961 83.00 1.6017 0.9435
1st Resistance 1.2876 82.84 1.5977 0.9415
Pivot* 1.2800 82.24 1.5930 0.9409
1st Support 1.2775 82.37 1.5922 0.9350
2nd Support 1.2735 81.97 1.5883 0.9315
3rd Support 1.2690 81.46 1.5830 0.9300
Forex spot: EUR/JPY
Spot 1056 GMT 106.32
3 Day Trend Bullish
Weekly Trend Bullish
200 day ma 102.01
3rd Resistance 107.66
2nd Resistance 106.72
1st Resistance 106.58
1st Support 105.72
2nd Support 105.48
3rd Support 105.00
(Dow Jones Technical Strategist Francis Bray and Emese Bartha in Frankfurt contributed to this story.)
Write to Eva Szalay at [email protected]
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