FOREX -Yen still in a pickle, Aussie nurses losses

Reuters

(Corrects Australian dollar low to 2-1/2 month, not 2-1/2 week,in 9th para)

* Yen wallows at four-year lows vs euro, four-month lows onUSD

* AUD also under pressure, still pressured by RBAintervention talk

* Markets keeping an eye on China/Japan spat

By Ian Chua

SYDNEY, Nov 25 (Reuters) - The yen started the new week atfour-year lows versus the euro and a four-month trough on thedollar, still very much the funding currency of choice in atrend that is likely to continue in this U.S. holiday-shortenedweek.

Latest data showed currency speculators increased net shortpositions in the Japanese currency to the most in six years,reflecting a belief the Bank of Japan will stay the mostaggressive in maintaining its massive stimulus program amongmajor central banks.

The euro rose as far as 137.36 yen in early Asiantrade, pipping Friday's peak of 137.32. The dollar retestedFriday's high of 101.36 yen, on track to break the July 8peak of 101.54.

"The USD/JPY rally may gather pace during the final week ofNovember as a slowing recovery in Japan undermines the Bank ofJapan's pledge to achieve the 2 percent target for inflation by2015," said David Song, currency analyst at DailyFX.

Recent data showed the world's third biggest economy slowedin the third quarter.

"The deviation in the policy outlook may continue to spurhigher highs in the exchange rate as the Fed looks to taper itsasset-purchase program in the coming months."

Against the dollar, the euro bought $1.3553, havingjust about recovered all of the losses suffered last Wednesdayafter a media report suggested the European Central Bank couldlower its deposit rate to negative.

The report, which had since been played down by the ECB,sent the euro spiralling to a low of $1.3399 from $1.3584.

Meanwhile, the Australian dollar languished near a 2-1/2month low of $0.9143 plumbed on Friday, still hauntedby the threat of intervention from Reserve Bank of AustraliaGovernor Glenn Stevens.

Stevens last Thursday said the central bank was"open-minded" about intervention to weaken the currency, havingconsistently argued the Aussie dollar was overvalued comparedwith fundamentals.

It last traded at $0.9165, having slid 2.1 percent lastweek. Immediate support is seen around $0.9097, the 76.4 percentretracement of its August to October rally.

Traders said the commodity currency could continue tostruggle particularly if tensions between China and Japan grew.

China at the weekend suddenly imposed new rules on airspaceover islands at the heart of a territorial dispute with Tokyo,prompting Japan and ally the United States to warn of anescalation into the "unexpected" if Beijing enforces the rules.

However, news of a breakthrough that curbed Iran's nuclearactivity could help offset any potential fallout from renewedChina/Japan tension.

Iran and six world powers clinched a deal on Sunday to curbthe Iranian nuclear programme in exchange for initial sanctionsrelief. The news saw oil prices fall sharply.

There is no major economic data due in Asia on Monday, whilemost of the U.S. economic releases will be front-loaded thisweek ahead of the Thanksgiving holiday on Thursday. (Editing by Shri Navaratnam)

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